UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

                                   (Mark One)

     [X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004

                                       OR

     [_]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

       For the Transition Period from _______________ to ________________

                        COMMISSION FILE NUMBER: 333-56046

                                  FBO AIR, INC.
        (Exact name of Small Business Issuer as Specified in Its Charter)


             Nevada                                      87-0617649
-------------------------------                      -------------------
(State or other jurisdiction of                      (I.R.S. Employer
incorporation or organization)                       Identification No.)

                               9087 E. Charter Oak
                              Scottsdale, AZ 85260
                    (Address of principal executive offices)

                                 (480) -634-6565
                           (Issuer's telephone number)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports) and (2) has been subject to such filing requirements for the past 90
days.

                          Yes [X]               No [_]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained herein, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference to Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [XX]

State issuer's revenues for its most recent fiscal year: $0

Aggregate market value of the voting stock held by non-affiliates based on the
weighted average sale price for such stock on the ten trading days preceding
March 27, 2005: $647,005

As of March 22, 2005, the Registrant had 6,026,022 shares of its Common Stock,
$0.001 par value, issued and outstanding.

Transitional Small Business Disclosure Format

                          Yes [_]               No [X]

<PAGE>


                          FBO AIR, INC. AND SUBSIDIARY
                        (A DEVELOPMENT STAGE ENTERPRISE)
                                   FORM 10-KSB
                                      INDEX

ITEM 1.      BUSINESS                                                          1
ITEM 2.      PROPERTIES                                                        4
ITEM 3.      LEGAL PROCEEDINGS                                                 4
ITEM 4.      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS               4
ITEM 5.      MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
             STOCKHOLDER MATTERS                                               6
ITEM 6.      MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION        10
ITEM 7.      FINANCIAL STATEMENTS                                             14
ITEM 8.      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
             AND FINANCIAL DISCLOSURE                                         15
ITEM 8A.     CONTROLS AND PROCEDURES                                          15
ITEM 9.      DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS     16
ITEM 10.     EXECUTIVE COMPENSATION                                           19
ITEM 11.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
             MANAGEMENT PRINCIPAL SHAREHOLDERS AND SECURITY OWNERSHIP
             OF MANAGEMENT                                                    21
ITEM 12.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                   22
ITEM 13.     EXHIBITS AND REPORTS ON FORM 8-K                                 23
ITEM 14.     PRINCIPAL ACCOUNTANT FEES AND SERVICES                           24
SIGNATURES                                                                    25
EXHIBIT 31.1                                                                  26
EXHIBIT 32.1                                                                  28


THIS FORM 10-KSB CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF 27A
OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF
1934. THE ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE SET FORTH IN THE
FORWARD-LOOKING STATEMENTS. CERTAIN FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE
ARE DISCUSSED IN ITEM 6, "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION- CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS," WITHIN THIS REPORT.


<PAGE>

                                     PART I

ITEM  1. BUSINESS

GENERAL

      FBO Air, Inc. ("FBO Air", the "Company" or "we") was formed on January 17,
2003 (date of inception) as a  proprietorship  to acquire and operate fixed base
operations.  On  January  2,  2004,  FBO Air was  incorporated  in the  State of
Arizona.  A fixed base operator ("FBO") is the primary provider of services such
as fueling,  parking of aircraft,  maintenance and repair,  to general  aviation
aircraft  operators.   The  Company's  business  strategy  is  to  purchase  and
consolidate FBOs in the secondary and tertiary markets located within the United
States.

      We completed a reverse merger  transaction on August 20, 2004 with Shadows
Bend  Development,  Inc.  ("Shadows Bend"), a Nevada  corporation.  Prior to the
merger,  Shadows Bend had been pursuing a business plan to acquire,  develop and
operate  "specialty  care"  facilities  designed to help people  diagnosed  with
Alzheimer's  or other related  illnesses.  This business  model was  effectively
abandoned  in  December  2002.  The  directors  and  management  of FBO Air upon
consummation of the merger became the directors and management of Shadows Bend.

      On August  20,  2004,  we  changed  our  corporate  name to FBO Air,  Inc.
pursuant  to an  Agreement  and Plan of  Merger  dated as of July 26,  2004 (the
"Merger  Agreement"),  between  Shadows  Bend and FBO Air.  A copy of the Merger
Agreement is filed (by  incorporation  by reference) as Exhibit 2 to this Report
and is incorporated in this Report by this reference.  The Merger  Agreement was
approved by a written  consent of stockholders of Shadows Bend holding more than
50% of the outstanding shares of Shadows Bend's common stock, $0.001 par value.

      For  accounting  purposes,  FBO Air was the  acquirer  in the August  2004
reverse merger  transaction,  and  consequently  the transaction is treated as a
recapitalization  of  the  Company.  FBO  Air's  financial  statements  are  the
historical financial statements of the post-merger entity.

      We believe  that the fixed based  operator  industry is  comprised of only
three  national  players and that each of these  companies'  FBOs  holdings  are
situated in predominantly primary market locations. The balance of the industry,
in our opinion, is very highly fragmented and served by over 3,000 operators who
own  FBOs  and  serve  customers  at one or more  of the  almost  3,400  airport
facilities  across the country that have at least one paved  3,000-foot  runway.
The vast majority of these independent  operators are single location operators.
These  operators  are, in our opinion,  relatively  unsophisticated,  frequently
under-capitalized, and, in many instances, seeking an exit strategy. It is these
operators that are the prime targets of the Company's consolidation strategy.

      In July 2004, FBO Air formed FBO Air - Garden City,  Inc. ("FBO Air Garden
City"), a wholly-owned subsidiary, so that in the future FBO Air Garden City may
acquire the net assets and/or stock of a target FBO.  Through December 31, 2004,
FBO Air Garden City has not acquired an FBO nor entered into a definitive  asset
or stock purchase agreement for such purpose.

      The Company's  primary source of operating  funds since inception has been
provided by its shareholders and a convertible note financing. In April 2004, we
entered into a convertible  note agreement with a group of investors to purchase
five-year,  8% convertible  notes in the aggregate  principal amount of $400,000
(the" Convertible Notes"). Copies of the Convertible Note Agreement, as amended,
are filed (by  incorporation by reference) as Exhibits 10.1, 10.2, 10.3 and 10.4
to this Report and are  incorporated by this reference.  Through March 22, 2005,
the  investors  have  allowed  us to draw  down the  total  available  amount of
$400,000 against this agreement.


                                       3
<PAGE>

      The Company intends to raise  additional  capital through private debt and
equity  investors.  The Company is currently a development  stage enterprise and
there is no assurance that these funds, if raised,  will be sufficient to enable
the Company to fully  complete its  development  activities,  attain  profitable
operations or continue as a going concern.  As of December 31, 2004, the Company
had  stockholder  and working  capital  deficiencies  of $532,998 and  $166,398,
respectively. FBO Air had no revenues and incurred an operating loss of $677,892
during the period from January 17, 2003 (date of inception) through December 31,
2004.

      Management has taken steps to improve the Company's liquidity. The Company
has obtained an extension from the convertible  notes holders to defer the start
of interest  payments until after the closing of the first FBO  acquisition.  In
addition, the Company has minimized its overhead costs by limiting its full time
employees to just one, the Company's President.

      The accompanying consolidated financial statements in Item 2, Part 7, have
been prepared on a going concern basis,  which  contemplates  the realization of
assets and  satisfaction of liabilities in the normal course of business.  These
consolidated financial statements do not include any adjustments relating to the
recovery of the recorded assets or the  classification  of the liabilities  that
might be necessary should the Company be unable to continue as a going concern.

OTHER POTENTIAL PRODUCTS

      We are  seeking to  balance  our  investment  in FBO  properties  with the
targeted  acquisition of other  aircraft  related  investments  such as aircraft
flight schools.

MARKETING AND SALES

      For the most part, we will rely on local  management to promote market and
sell the goods and services of FBO  operations to current and future  customers.
As our field  network of FBO's  grows,  from our central  headquarters,  we will
market  nationally to new larger  customers  such as companies in the fractional
jet ownership business.

GOVERNMENT APPROVALS

      The FBO's that we target for acquisition generally operate on municipal or
other government  owned real estate  properties.  Accordingly,  at times we will
need to obtain  certain  consents or approvals  from that  government  entity in
conjunction with our acquisition.

EFFECT OF EXISTING OR PROBABLE GOVERNMENT REGULATION

      The FBO's that we target to acquire also operate under the  supervision of
the  Federal  Aviation  Authority.  The Company  intends to  dispense  fuels and
provide repair and maintenance  services,  all of which are under the purview of
local, regional and national regulatory agencies.  The Company intends to comply
with all government regulations.

COMPETITION

      We believe  that the fixed based  operator  industry is  comprised of only
three national FBO companies and that each of these  companies' FBO holdings are
situated in predominantly primary market locations.  The balance of the industry
is, in our opinion,  very highly  fragmented and served by over 3,000  operators
who own FBOs and serve  customers  at one or more of the  almost  3,400  airport
facilities  across the country that have at least one paved  3,000-foot  runway.
The vast majority of these independent  operators are single location operators.
These  operators  are, in our opinion,  relatively  unsophisticated,  frequently
under-capitalized, and, in many instances, seeking an exit strategy. It is these
operators that are the prime targets of the Company's consolidation strategy. As
to competition, there is a fair amount of flexibility for aircraft in transit to
choose from a number of FBO options  within a 200-300 mile radius.  Accordingly,
we believe that the higher level of customer  service that we intend to offer in
our  facilities  will  allow us to draw  additional  aircraft  and thus  compete
successfully  against other FBOs.  There can be no assurance,  however,  that we
will be able to compete successfully.


                                       4
<PAGE>

COSTS AND EFFECTS OF COMPLYING WITH ENVIRONMENTAL LAWS

      The  Company  will be  dispensing  fuels  and in  maintenance  and  repair
operations, will be handling virgin and waste petroleum lubricants. The handling
of these materials is subject to federal,  state and local  environmental  laws.
The Company intends to comply with these laws, as part of its standard operating
practice. The cost of this compliance is considered a normal cost of operations.

EMPLOYEES

      The Company  currently  has one  full-time  employee who is the  Company's
President  and CEO.  Depending  on its level of  business  activity  through its
planned  acquisitions,  the Company expects to hire additional  employees in the
next 12 months,  as needed,  to support  finance,  marketing and operations.  In
October 2004,  the Company  entered into an agreement with an executive to serve
as its Chief  Financial  Officer and  Executive  Vice  President,  which becomes
effective upon the date of the initial FBO  acquisition and the achievement of a
certain level of financing.  As of March 22, 2005,  this agreement is not yet in
effect.  The Company also retains  consultants on an as-needed  basis to provide
marketing support and to assist with financial matters.


                                       5
<PAGE>

ITEM  2. PROPERTIES

      The Company maintains its headquarters in Scottsdale, Arizona, in a shared
space provided for by one of the Company's organizers.

      Effective in 2004, we began seeking  acquisitions for FBO properties under
which we typically contract for the lease rights to airport properties.  Through
March 22, 2005, we have not yet acquired any FBO  properties.  Currently,  there
are no  limitations  on the types of assets the Company may invest.  This policy
may be changed without the consent of  shareholders.  It is the Company's policy
to invest in properties  primarily  for the income which will be generated  from
the flight based operations.

      As of March 22, 2005,  the Company has  negotiated  and issued  letters of
intent for four  potential FBO  acquisitions:  1) An FBO located in Garden City,
Kansas,  requiring cash at closing of approximately $435,000 and the issuance of
a 5% note for  approximately  $240,000 to be paid out over 18 months;  2) An FBO
located  in the  northeast  region of the  country,  acquiring  the stock of the
company with a combination of cash and debt totaling  approximately  $2,800,000;
3) An FBO  located in the  southern  region of the  country,  requiring  cash at
closing of approximately  $1,250,000;  and 4) A flight school, including certain
aircraft,   located  in  the  southwest  region  of  the  country,  requiring  a
combination of cash and notes totaling approximately  $2,495,000.  Completion of
these  acquisitions  is subject to customary  closing  conditions  including the
raising of capital.  There can be no  assurance as to whether or when any or all
of these potential acquisitions may be consummated.

      The Company intends to finance the acquisition of these properties through
a  combination  of debt and equity  financing.  The  Company's  objective  is to
acquire and build a national network of FBO properties.

      The Company has no current intention to invest in real estate,  other than
in  connection  with the  acquisition  of an FBO  property.  The  Company has no
intention  to invest in real estate  mortgages.  The Company  may  purchase  the
common stock of  companies,  as a means of  acquisition  of that FBO, but has no
intent to  passively  hold or invest in the common stock of companies in the FBO
business.

ITEM  3. LEGAL PROCEEDINGS

      In early 2005,  the  Company  was served with a complaint  which names the
Company,  among  others,  as a defendant in a suit  brought by a  broker-dealer,
seeking  damages  of   approximately   $100,000   arising  from  Shadows  Bend's
cancellation of a stock certificate in the year 2002 evidencing shares allegedly
sold by the  plaintiff for the account of a  stockholder  of Shadows  Bend.  The
Company disputes the allegations, has engaged local trial counsel and intends to
vigorously defend itself in this matter.

ITEM  4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

            (a) There were no  meetings  of  stockholders  held  during the year
ended  December 31,  2004.  Instead,  the Company  obtained on July 26, 2004 the
consents from two  stockholders  holding more than a majority of the outstanding
shares of the Common Stock to the reverse merger transaction described in Item 1
to this Report and in (b) below.

            (b) As previously reported, effective as of August 20, 2004 with the
merger of FBO Air, Inc., an Arizona corporation,  with and into the Company (the
"Merger")  pursuant  to the  Merger  Agreement,  Ivan  Galindo  and  Michael  W.
Sciacchetano  resigned as directors and Ronald J.  Ricciardi and Alvin S. Trenk,
both directors of the Arizona corporation,  were elected instead as directors of
the Company.


                                       6
<PAGE>

            (c) Two holders for an aggregate of  3,115,374  shares,  or 51.8% of
the outstanding shares of the Common Stock, consented to the following actions:

                        (i) filing of a Certificate of Change which effected a
            one-for-four reverse stock split of the Common Stock prior to the
            consummation of the Merger so that the outstanding 6,016,054 shares
            were reduced to 1,504,397 shares;

                        (ii) filing of a Certificate of Amendment to the
            Company's Certificate of Incorporation which increased the
            authorized shares of Common Stock from 50,000,000 to 100,000,000 and
            authorized 10,000,000 shares of Preferred Stock; and

                        (iii) filing of Articles of Merger which effected the
            Merger, including the change of name of the Company from Shadows
            Bend Development, Inc. to FBO Air, Inc.


                                       7
<PAGE>

                                     PART II

ITEM  5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET FOR COMMON EQUITY

      The Company's Common Stock, par value $.001 per share (the "Common Stock")
is traded on the OTC Bulletin Board  ("OTCBB")  under the symbol FBOR. The OTCBB
is a regulated  quotation  service that  displays  real-time  quotes,  last-sale
prices and volume  information in  over-the-counter  ("OTC") equity  securities.
Prior to December  21, 2004,  the stock had been traded on the Pink Sheets.  The
following table sets forth the range of high and low closing sale prices for the
Common  Stock  as  reported  on the  Pink  Sheets  during  each of the  quarters
presented until December 21, 2004 and the OTCBB subsequent to December 21, 2004.
The  quotations  set forth below are  inter-dealer  quotations,  without  retail
mark-ups,  mark-downs or commissions  and do not  necessarily  represent  actual
transactions.  On August 20, 2004, the Company effected a one four reverse stock
split. All closing sales prices below have been restated  retroactively  for the
effect of the reverse stock split.

                                                       Common
                                                       Stock
                                              -----------------------
         QUARTERLY PERIOD ENDED                HIGH              LOW
         ----------------------               ------           ------

         March 31, 2003                       0.0040           0.0004
         June 30, 2003                        0.0040           0.0004
         September 30, 2003                   0.0004           0.0004
         December 31, 2003                    0.0040           0.0004

         March 31, 2004                       0.2000           0.0004
         June 30, 2004                        0.0004           0.0004
         September 30, 2004                   0.0040           0.0001
         December 31, 2004                    0.0001           0.0001

      To date there has not been an active market for the Common Stock.

      As of March 22, 2005,  there were  approximately  589 holders of record of
the Common Stock.  This number does not include  beneficial owners of the Common
Stock  whose  shares are held in the names of various  broker-dealers,  clearing
agencies, banks, and other fiduciaries.

      During August 2004, we increased to 100,000,000 the authorized  shares for
the Company's Common Stock and authorized 10,000,000 shares of Preferred Stock.

      We have not declared or paid any cash  dividends on our common  shares for
the period from January 1, 2003 through December 31, 2004. The Company currently
intends to retain any future  earnings to finance the growth and  development of
its business and future  operations and,  therefore,  does not anticipate paying
any cash dividends in the foreseeable future.

                                       8
<PAGE>

SECURITIES ISSUED UNDER COMPENSATION PLANS

      During September 2004, the Board of Directors  granted options to purchase
an aggregate of 150,000 shares, 25,000 to each of the four independent directors
and 50,000 to a  consultant/shareholder  of the Company.  These  options have an
exercise price of $0.01 per share and expire four years from the date of grant.

      In addition,  the Board of Directors  approved  consulting  and employment
agreements,   respectively,  which  included  within  its  terms  the  Company's
agreement,  over a period  of three  years,  to  provide  stock  options  in the
aggregate of 900,000  shares,  150,000 to a  shareholder  and  consultant to the
Company and 750,000 to an executive to serve as the  Company's  Chief  Financial
Officer and Executive Vice President. In addition,  under the agreement with the
Company's  President and CEO, an option to purchase shares may be granted by the
Board of  Directors.  As of March 22, 2005,  the  consulting  agreement  and the
employment agreements with the executive to serve as the Chief Financial Officer
and with the Company's President and CEO are not yet in effect.  Accordingly, no
options have yet been granted hereunder.

      There were no  repurchases  of shares  during the  quarterly  period ended
December 31, 2004.

RECENT SALES OF UNREGISTERED SECURITIES

CONVERTIBLE NOTES

      In April 2004, the Company entered into a convertible  loan agreement with
a group of investors  ("Investors") to purchase five-year,  8% Convertible Notes
in the  aggregate  principal  amount of $400,000 as  follows:  a) $130,000  upon
signing;  b)  $270,000  upon the  later  to  occur  of:  1) the  reverse  merger
transaction,  and 2) the acquisition of an FBO as defined in the agreement.  The
Convertible Notes mature April 2009, with interest payable quarterly,  beginning
with the first interest payment, which is due December 1, 2004.

      In April 2004,  the Investors  funded the sale of the initial  $130,000 of
Convertible  Notes  under the  agreement.  During  August  2004,  October  2004,
November 2004 and December 2004, the Investors  waived one provision under their
agreement  and  funded  the sale of  $125,000,  $45,000,  $40,000  and  $40,000,
respectively of Convertible Notes under the agreement.

      The Company has the option to pay  interest in cash or common  stock.  For
the  purpose  of  determining  the  number of shares to be issued in  payment of
interest,  such shares shall be valued at the average of their fair market value
during the five trading days preceding the interest payment date. The notes plus
accrued interest are convertible through the maturity date, into 40%, as defined
in the agreement,  of the Company's  outstanding common stock. In addition,  the
holders  have  certain  piggyback  registration,  tag along and other  rights as
defined in the agreement.  The Company is required to maintain certain financial
and other covenants.

      During January 2005, the Investors  waived one provision  under their loan
agreement and funded the sale of the remaining  $20,000  Convertible Notes under
the agreement.  Also, during January 2005, the Company entered into an amendment
of the agreement  with the Investors  whereby the due date of the first interest
payment is deferred to the date of closing of the first FBO acquisition.

      There was no underwriter and no underwriting discounts or commissions. The
Company  claims  that the sale of the  Convertible  Notes  was  exempt  from the
registration  requirement of Section 5 of the Securities Act of 1933, as amended
(the  "Securities  Act"),  pursuant  to the  exemption  of  Section  4(2) of the
Securities  Act as a transaction  not involving a public  offering.  Each of the
Investors represented to the Company that it was acquiring its Convertible Note,
and would acquire the underlying shares of the Common Stock upon conversion, for
investment and not with view toward,  or in connection  with, a distribution  as
such term is contemplated under the Securities Act.


                                       9
<PAGE>

OPTIONS TO PURCHASE SHARES OF COMMON STOCK

            (a) (i) On  September  30,  2004,  the  Board of  Directors  granted
options to purchase  an  aggregate  of 150,000  shares of the  Company's  Common
Stock, $.01 par value (the "Common Stock").

                  (ii) There were no underwriters.  An option to purchase 25,000
shares of the Common Stock was granted to each of the four directors who are not
employees of the Company and an option to purchase  50,000  shares of the Common
Stock was granted to Jeffrey M. Trenk, a consultant to the Company.

                  (iii) The options were not sold to the  optionees for cash and
there were no underwriting discounts or commissions. The options were granted to
the optionees in consideration of the services they will render to the Company.

                  (iv) The Company  claims  that the grants of the options  were
exempt from the  registration  requirement  of Section 5 of the  Securities  Act
pursuant to the exemption of Section 4(2) of the Securities Act as  transactions
not  involving  a public  offering.  Each of the  optionees  represented  to the
Company  that he was  acquiring  the option,  and would  acquire the  underlying
shares of the Common Stock upon  exercise,  for  investment  and not with a view
toward, or in connection with, a distribution as such term is contemplated under
the Securities Act.

                  (v) Each option becomes  exercisable on the first  anniversary
date of the date of grant (i.e.,  September  30, 2005)  provided the optionee is
still  serving  as a director  or a  consultant,  whichever  is  applicable,  is
exercisable at $.01 per share and expires on September 29, 2008.

                  (vi) Not applicable.

            (b) Not applicable.

            (c) Not applicable

SHARES ISSUED FOR SERVICES

      During June 2004, the Company issued  1,906,250  shares of Common Stock as
consideration  for  services  performed  by  various  individuals  valued in the
aggregate of $69,227.

INCREASE IN AUTHORIZED SHARES, REVERSE STOCK SPLIT AND MERGER

      On August 20,  2004,  pursuant  to the  Merger  Agreement  by and  between
Shadows Bend  Development,  Inc., a Nevada  corporation,  and FBO Air,  Inc., an
Arizona  corporation,  FBO Air was merged (the  "Merger")  with and into Shadows
Bend and  Shadows  Bend  simultaneously  changed its name to FBO Air,  Inc.  The
Merger   Agreement  was  approved  by  a  written  consent  (the  "Consent")  of
stockholders of the Company  holding more than 50% of the outstanding  shares of
the Company's Common Stock.

      Shadows  Bend  also  simultaneously  implemented  (as  authorized  by  the
Consent) a one-for-four  reverse stock split of the Common Stock. All references
in this  Report to the number of shares of the Common  Stock,  unless  otherwise
noted,  shall be on a post-split basis. As a result,  the aggregate of pre-split
6,016,054  shares of the Common Stock held by stockholders of Shadows Bend prior
to the Merger was reduced to an aggregate of 1,504,014  shares.  An aggregate of
4,521,625  shares of Common  Stock  were  issued to the  shareholders  of FBO in
connection  with the Merger,  so that they owned 75.0% of the  6,025,639  shares
outstanding  immediately after the Merger. The foregoing does not give effect to
the  aggregate  of  4,018,375  shares  initially  reserved  for  issuances  upon
conversions by the holders of the Convertible Notes issued by FBO and assumed by
the Company pursuant to the Merger Agreement. Were such shares to be issued, the
former FBO shareholders and noteholders would own, as a result of the Merger, an
aggregate  of  8,540,000  shares,  or 85.0% of the then  outstanding  10,044,014
shares of Common Stock,  assuming no other shares of Common Stock were issued in
the interim period prior to conversion.


                                       10
<PAGE>

AUTHORIZED SERIES A CONVERTIBLE PREFERRED STOCK

      On February 22, 2005, the Company  authorized the issuance of 1,000 shares
of preferred  stock,  designated  as Series A Convertible  Preferred  Stock (the
"Convertible  Preferred  Stock"),  each  share  having a Stated  Value  ("Stated
Value") of $10,000.  A copy of the  Certificate  of  Designations  creating  the
Convertible  Preferred  Stock is filed as Exhibit  3.1(a) to this  Report and is
incorporated  herein by this  reference.  These  shares  provide for  cumulative
dividends  at the annual rate of 8%,  payable  quarterly  and mature three years
from the date of issue. The cumulative  dividend,  at the option of the Company,
may be paid  either  in cash or by the  issuance  of  additional  shares  of the
Convertible  Preferred Stock. The holders of the Convertible Preferred Stock and
the holders of the shares of Common Stock shall vote as a single class, with the
holders of the Convertible Preferred Stock having the number of votes based upon
the formula for the conversion to Common Stock, as provided  below.  The holders
of the  Convertible  Preferred Stock have the right to elect one Director to the
Company's Board of Directors.

      The Convertible  Preferred Stock is convertible  into shares of the Common
Stock. The shares shall automatically convert upon (a) the Company's realization
of gross proceeds  exceeding  $5,000,000  from the sale of equity  securities (a
"Qualified  Follow-On  Offering"),  separate  and apart from any offering of the
shares of the  Convertible  Preferred  Stock,  or (b) at such time as the traded
price of the  Company's  Common Stock  exceeds 2.5 times the Initial  Conversion
Price  ("Conversion  Price"),  and under both (a) and (b), the shares subject to
conversion are fully  registered  shares under the Securities Act. At the option
of the holder, the shares, in whole or in part, may be converted at any time.

      Subject  to  certain  adjustments  in the event of stock  splits and other
events,  as provided in the  agreement,  and upon the sale of additional  equity
securities at a price below the Conversion  Price, the Conversion Price is $0.30
per share. Each share of Preferred Stock will convert into that number of shares
of Common  Stock  determined  by  dividing  the  Stated  Value of each  share of
Convertible  Preferred Stock by the Conversion Price. In the case of a mandatory
conversion on account of a Qualified Follow-on  Offering,  then at the option of
the holder, the shares shall be converted at (a) the Conversion Price, or (b) at
the same price that such  securities are being sold in such Qualified  Follow-On
Offering,  with the  holder,  in this  case,  also  receiving  a  premium  of an
additional 10% in the number of such shares.  Under certain conditions whereupon
the Company sells shares of Common Stock at a price below the Conversion  Price,
then the Conversion Price shall be reduced, as provided for in the agreement.

      On  the  third  anniversary  of  the  original  date  of  issuance  of the
Convertible  Preferred  Stock,  the Company  shall redeem for cash all remaining
outstanding  shares at a redemption  price equal to the Stated  Value,  plus all
accrued and unpaid dividends.

      In  the  event  of a  liquidation  of  the  Company,  the  holders  of the
Convertible Preferred Stock then outstanding will be entitled to receive 115% of
the stated value of each share, plus any accrued and unpaid dividends.


                                       11
<PAGE>

ITEM  6.  MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF  CONDITION  AND RESULTS OF
          OPERATIONS

                          SUMMARY FINANCIAL INFORMATION

      The summary  financial  data set forth below is derived from and should be
read in conjunction with the consolidated  financial  statements,  including the
notes thereto, filed as part of this Form 10-KSB.

                                               YEAR ENDED          YEAR ENDED
  CONSOLIDATED STATEMENT OF                    DECEMBER 31,        DECEMBER 31,
      OPERATIONS DATA:                            2004                 2003
---------------------------------------    ----------------       -------------
(in thousands, except for share and per
share data)
Revenues                                   $        0             $        0
Net Loss - common shares                   $     (573)            $     (104)
Net loss per common share                  $     (.14)            $     (.04)
Weighted average number of
  shares -basic and deleted                 4,136,013              2,615,375

                                               DECEMBER 31,
          BALANCE SHEET DATA:                     2004
---------------------------------------    ----------------
Working capital (deficiency)              $      (166)
Total assets                              $        46
Total liabilities                         $       579
Stockholders' (deficiency)                $      (533)

FORWARD-LOOKING STATEMENTS

      This Report on Form 10-KSB contains  "forward-looking  statements"  within
the  meaning  of  Section  27A of the  Securities  Act  and  Section  21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements
other than  statements of historical  facts  included in this Report,  including
without  limitation,  the  statements  under  "General,"  "Marketing and Sales,"
"Liquidity and Capital  Resources"  and "Plan of Operation" are  forward-looking
statements.  The Company cautions that forward-looking statements are subject to
certain  risks and  uncertainties  that  could  cause  actual  results to differ
materially  from  those  indicated  in the  forward-looking  statements,  due to
several important factors herein identified.  Important factors that could cause
actual results to differ materially from those indicated in the  forward-looking
statements  ("Cautionary  Statements")  include  delays in product  development,
competitive  products  and  pricing,  general  economic  conditions,   risks  of
intellectual  property  litigation,  product demand and industry  capacity,  new
product  development,  commercialization  of  new  technologies,  the  Company's
ability to raise additional capital, the Company's ability to obtain the various
approvals  and permits for the land  development  and the risk factors  detailed
from  time to time in the  Company's  Annual  Report  on Form  10-KSB  and other
materials filed with the Securities and Exchange Commission ("SEC").

      All subsequent written and oral forward-looking statements attributable to
the Company or persons  acting on its behalf are  expressly  qualified  in their
entirety by the Cautionary Statements.

(a)   PLAN OF OPERATION

      (1) The Company's business strategy is to purchase and consolidate FBOs in
the secondary and tertiary  markets  located within the United  States.  In this
market,  the Company  would  provide FBO  services  such as fueling,  parking of
aircraft,  maintenance and repair, to general aviation aircraft  operators.  The
Company's primary source of operating funds since inception has been provided by
its shareholders and convertible note financing.  In April 2004, we entered into
a convertible note agreement with a group of investors to purchase five-year, 8%
convertible notes in the aggregate  principal amount of $400,000.  Through March
22, 2005, the investors have allowed us to draw down the total available  amount
of $400,000 against this agreement.


                                       12
<PAGE>

                  (i)  The  Company  requires  additional  cash to  finance  the
      purchases  of the FBOs and is in the process of seeking to raise a minimum
      of $3 million  through a private  placement.  Under terms of this offering
      and upon successful  completion of the minimum  amount,  the Company shall
      have the capacity to consummate the first two  acquisitions  of fixed base
      operations in addition to having  sufficient  working capital for at least
      the next twelve  months.  Under the terms of this offering and  successful
      completion  of the  maximum  amount,  the  Company is expected to have the
      financial  capacity to consummate the next two acquisitions.  There can be
      no assurance  that this private  placement will be consummated or that the
      acquisition will be effected.

                  (ii) As part of its plan to acquire  fixed base  operations in
      secondary  and  tertiary  markets  across the  country,  the  Company  has
      developed a database of potential target  acquisitions.  This database was
      compiled through publicly available and  industry-specific  information as
      well as from direct contact with hundreds of individual owners of FBOs.

                  (iii) In connection  with its  anticipated  transactions,  the
      Company will acquire plant and equipment  related to the aviation industry
      such as fuel vehicles,  aircraft movement vehicles, and tools and supplies
      for the  maintenance  of  aircraft.  After  each  acquisition,  a  capital
      expenditure  plan and budget would be  established  for each  location,  a
      portion  of  which  would  inevitably  go  toward   additional  plant  and
      equipment. In connection therewith,  the Company has negotiated and issued
      letters of intent for four potential FBO  acquisitions:  1) An FBO located
      in  Garden  City,  Kansas,  requiring  cash at  closing  of  approximately
      $435,000  and the issuance of a 5% note for  approximately  $240,000 to be
      paid out over 18 months;  2) An FBO located in the northeast region of the
      country, acquiring the stock of the company with a combination of cash and
      debt totaling approximately  $2,800,000; 3) An FBO located in the southern
      region  of  the  country,  requiring  cash  at  closing  of  approximately
      $1,250,000; and 4) A flight school, including certain aircraft, located in
      the southwest  region of the country,  requiring a combination of cash and
      notes totaling approximately $2,495,000.  Completion of these acquisitions
      is  subject to  customary  closing  conditions  including  the  raising of
      capital.

                  (iv) In  connection  with its  anticipated  transactions,  the
      number of employees in the Company will change significantly. In the first
      two  anticipated  acquisitions,  the employee  count would grow to over 50
      people,   including   full-time   and  part-time   headcount.   Subsequent
      transactions would add employees in numbers ranging from 5 - 60 people per
      acquisition.

(b)      PRIVATE OFFERING

      The Company is seeking to offer units in a private  placement  pursuant to
Rule 506 of Regulation D under the Securities Act (the "Private Offering"). Each
such unit in the Private Offering will consist of:

      1. A Note (a) in the principal amount of $25,000; (b) with a maturity date
of three (3) years;  (c) bearing  interest at the rate of 10% per annum  payable
quarterly  in arrears;  (d) secured by the current and to be acquired  assets of
the Company and its present and future subsidiaries;  and (d) subject to certain
covenants of the Company;

      2. $50,000 in face amount of shares of the  Convertible  Preferred  Stock,
and

                                       13
<PAGE>

      3. A five-year  Warrant to purchase  50,000  shares of the Common Stock at
the initial  exercise price (the "Warrant  Exercise  Price") of $0.60 per share,
with the Warrant  Exercise  price and the number of shares to be adjusted in the
event of stock splits and certain  other events,  as provided in the  agreement,
and upon the sale by the  Company of  additional  equity  securities  at a price
below the Warrant Exercise Price. At the option of the Company, the Warrants may
be  redeemed  at any time,  in whole,  but not in part,  at a price of $0.01 per
share provided that: (a) there is an effective  registration statement under the
Securities  Act  covering  the  resale of the  Warrant  shares;  (b) the  volume
weighted average closing price of the Common Stock for the prior 20 trading days
is not less than 250% of the Warrant  Exercise Price;  and (c) the average daily
trading volume of the Company's Common Stock is not less than 200,000 shares per
day during such 20-day trading period.

      The foregoing description of the Company's  contemplated private placement
is not an offer by the Company of any securities and such offer may be made only
in compliance with Regulation D under the Securities Act.

      There can be no assurance that the Private Offering will be consummated or
that, if consummated, it will be on the terms described.

CO-INVESTMENT OFFERING

      In addition,  if the minimum units of the Private  Offering are sold,  the
Company  intends to offer to other  investors an  additional  $1,250,000 in face
amount of the Convertible  Preferred  Stock and to issue a five-year  Warrant to
purchase 625,000 shares of the Common Stock (the "Co-Investment").  The terms of
the  Convertible  Preferred  Stock and the  Warrant are the same as those in the
Private Offering. The Co-Investment will not be a part of the Private Offering.

      During  February  2005,  Co-Investors  purchased  for cash $100,000 of the
Convertible  Preferred Stock.  There can be no assurance that they will purchase
any additional securities.

(c) OFF-BALANCE SHEET ARRANGEMENTS

      The Company does not have any off-balance sheet arrangements.

CRITICAL ACCOUNTING POLICIES

      The  Company's   consolidated  financial  statements  and  related  public
financial  information  are based on the  application  of accounting  principles
generally  accepted in the United  States  ("GAAP").  GAAP  requires  the use of
estimates,  assumptions,  judgments and subjective interpretations of accounting
principles that have an impact on the assets,  liabilities,  revenue and expense
amounts  reported.  These  estimates  can also affect  supplemental  information
contained  in  our  external   disclosures   including   information   regarding
contingencies, risk and financial condition. We believe our use of estimates and
underlying  accounting  assumptions  adhere  to GAAP  and are  consistently  and
conservatively  applied.  We base our estimates on various  assumptions  that we
believe to be  reasonable  under the  circumstances.  Actual  results may differ
materially from these estimates  under different  assumptions or conditions.  We
continue to monitor  significant  estimates  made during the  preparation of our
consolidated financial statements.

      Our  significant  accounting  policies  are  summarized  in  Note 3 of our
consolidated  financial  statements.  The  Company  currently  has  no  critical
accounting policies.


                                       14
<PAGE>

EFFECTS OF NEW ACCOUNTING PRONOUNCEMENTS

      In December  2004,  the FASB issued SFAS No. 123R "Shared Based  Payment."
This  statement  is a  revision  of SFAS  Statement  No.  123,  "Accounting  for
Stock-Based  Compensation"  and supersedes APB Opinion No. 25,  "Accounting  for
Stock Issued to Employees," and its related implementation  guidance.  SFAS 123R
addresses all forms of shared based payment  ("SBP")  awards,  including  shares
issued under employee stock purchase plans, stock options,  restricted stock and
stock  appreciation  rights.  Under SFAS 123R,  SBP awards result in a cost that
will be measured at fair value on the awards' grant date, based on the estimated
number of awards that are expected to vest and will be reflected as compensation
cost in the  historical  financial  statements.  This statement is effective for
public entities that file as small business issuers - as of the beginning of the
first interim or annual  reporting  period that begins after  December 15, 2005.
The Company is in the process of evaluating  whether the SFAS No. 123R will have
a significant impact on the Company's overall results of operations or financial
position.

      In May 2003, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 150,  "Accounting for Certain Financial  Instruments with Characteristics of
Both   Liabilities  and  Equity".   SFAS  No.  150  establishes   standards  for
classification and measurement in the statement of financial position of certain
financial  instruments with  characteristics  of both liabilities and equity. It
requires  classification of a financial instrument that is within its scope as a
liability  (or an asset in some  circumstances).  SFAS No. 150 is effective  for
financial  instruments  entered  into  or  modified  after  May  31,  2003  and,
otherwise,  is effective at the beginning of the first interim period  beginning
after June 15, 2003.  The Company  adopted SFAS No. 150 in the third  quarter of
2003.  The  adoption  did  not  have an  impact  on the  consolidated  financial
statements.

      In  January   2003,  as  revised  in  December   2003,   the  FASB  issued
Interpretation No. 46 ("FIN 46"),  "Consolidation of Variable Interest Entities,
an  Interpretation  of ARB No. 51." FIN 46 requires  certain  variable  interest
entities  to be  consolidated  by the primary  beneficiary  of the entity if the
equity investors in the entity do not have the  characteristics of a controlling
financial  interest or do not have  sufficient  equity at risk for the entity to
finance its activities  without additional  subordinated  financial support from
other  parties.  FIN 46 is  effective  for all new  variable  interest  entities
created or acquired  after  January 31,  2003.  For variable  interest  entities
created or acquired  prior to February 1, 2003, the provisions of FIN 46 must be
applied for the first interim or annual  period ending after  December 15, 2004.
The  adoption  of FIN 46 for  provisions  effective  during  2003 did not have a
material impact on the consolidated financial statements.

      In November  2004,  the FASB  ratified the release of Emerging  Issue Task
Force  ("EITF")  Issue No. 04-08  ("EITF  04-08"),  "The Effect of  Contingently
Convertible  Instruments  on Diluted  Earnings per Share." EITF 04-08  reached a
consensus  that  contingently  convertible  instruments,  such  as  contingently
convertible  debt,  contingently  convertible  preferred  stock and  other  such
securities  should be  reflected  in diluted  earnings  per share (if  dilutive)
regardless  of whether the market price  trigger has been met. The  consensus is
effective for reporting  periods ending after December 15, 2004.  EITF 04-08 did
not have a material impact on the consolidated financial statements.


                                       15
<PAGE>

ITEM  7. FINANCIAL STATEMENTS

      The  information  required by this item is  incorporated  by  reference to
pages F-1 through F-19 of this Annual Report on Form 10-KSB.


                                       16
<PAGE>

                          FBO AIR, INC. AND SUBSIDIARY
                        (A Development Stage Enterprise)
             Table of Contents to Consolidated Financial Statements


Report of Independent Registered Public Accounting Firm                      F-2

Consolidated Financial Statements

  Consolidated Balance Sheet as of December 31, 2004                         F-3

  Consolidated Statements of Operations For the Period from January 17,
  2003 (Inception) to December 31, 2003, For the Year Ended December
  31, 2004 and For the Period from January 17, 2003 (Inception) to
  December 31, 2004                                                          F-4

  Consolidated Statements of Stockholders' Deficiency For the period from
  January 17, 2003 (Inception) through December 31, 2004                     F-5

  Consolidated Statements of Cash Flows For the Period from January 17,
  2003 (Inception) to December 31, 2003, For the Year Ended December
  31, 2004 and For the Period from January 17, 2003 (Inception) to
  December 31, 2004                                                          F-6

Notes to Consolidated Financial Statements                                   F-8


                                      F-1

<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders
FBO Air, Inc.

We have audited the accompanying consolidated balance sheet of FBO Air, Inc. and
Subsidiary (a  Development  Stage  Enterprise)  as of December 31, 2004, and the
related consolidated statement of operations, stockholders' deficiency, and cash
flows for period from January 17, 2003  (inception)  through  December 31, 2003,
the year  ended  December  31,  2004,  and the  period  from  January  17,  2003
(inception) through December 31, 2004. These consolidated  financial  statements
are the  responsibility of the Company's  management.  Our  responsibility is to
express an  opinion  on these  consolidated  financial  statements  based on our
audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and  perform  the  audit  to  obtain  reasonable  assurance  about  whether  the
consolidated financial statements are free of material misstatement. The Company
is not  required  to  have,  nor were we  engaged  to  perform,  an audit of its
internal control over financial reporting.  Our audit included  consideration of
internal  control  over  financial  reporting  as a basis  for  designing  audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the  effectiveness  of the Company's  internal  control
over  financial  reporting.  Accordingly,  we express no such opinion.  An audit
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the  consolidated  financial  statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall consolidated  financial statement
presentation.  We believe  that our audits  provide a  reasonable  basis for our
opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the consolidated  financial  position of the
Company as of December 31, 2004, and the consolidated  results of its operations
and its cash flows for period from January 17, 2003 (inception) through December
31, 2003, the year ended December 31, 2004, and the period from January 17, 2003
(inception) through December 31, 2004 in conformity with U.S. generally accepted
accounting principles.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going  concern.  As more fully  described in
Note 2, the Company  has no  revenues  and has  incurred  significant  operating
losses  since  inception,  which raise  substantial  doubt  about the  Company's
ability to continue as a going  concern.  Management's  plans in regard to these
matters are also described in Note 2. The consolidated  financial  statements do
not  include  any  adjustments  that  might  result  from  the  outcome  of this
uncertainty.


New York, NY
March 18, 2005

                                      F-2
<PAGE>

                          FBO AIR, INC. AND SUBSIDIARY
                        (A Development Stage Enterprise)

                           CONSOLIDATED BALANCE SHEET

                                December 31, 2004


                                     ASSETS

CURRENT ASSETS
  Cash                                                                $  14,117
  Prepaid insurance                                                       2,668
  Due from stockholder                                                   15,510
                                                                      ---------
    Total current assets                                                 32,295

OTHER ASSETS
  Deposit for acquisition                                                10,000
  Option on lease of real estate, net                                     3,400
                                                                      ---------
    Total other assets                                                   13,400
                                                                      ---------

      TOTAL ASSETS                                                    $  45,695
                                                                      =========

                    LIABILITIES AND STOCKHOLDERS' DEFICIENCY

CURRENT LIABILITIES
  Accounts payable and accrued expenses                               $ 198,693

LONG-TERM LIABILITIES
  Convertible notes                                                     380,000
                                                                      ---------

      TOTAL LIABILITIES                                                 578,693
                                                                      ---------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIENCY
  Preferred stock - $.001 par value; authorized 10,000,000;
    none issued and outstanding                                              --
  Common stock - $.001 par value; authorized 100,000,000;
    6,026,022 issued and outstanding                                      6,026
  Additional paid-in capital                                             34,475
  Deficit accumulated during development stage                         (573,499)
                                                                      ---------

      TOTAL STOCKHOLDERS' DEFICIENCY                                   (532,998)
                                                                      ---------

      TOTAL LIABILITIES AND STOCKHOLDERS'
        DEFICIENCY                                                    $  45,695
                                                                      =========

See notes to consolidated financial statements.

                                      F-3

<PAGE>

                          FBO AIR, INC. AND SUBSIDIARY
                        (A Development Stage Enterprise)

                      CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                           For the Period                                   For the Period
                                        from January 17, 2003          For the           from January 17, 2003
                                           (Inception) to            Year Ended             (Inception) to
                                          December 31, 2003       December 31, 2004        December 31, 2004
                                        ---------------------   ---------------------    ---------------------

<S>                                     <C>                     <C>                      <C>
REVENUE                                 $                  --   $                  --    $                  --
                                        ---------------------   ---------------------    ---------------------

EXPENSES
  General and administrative expenses                 104,393                 491,735                  596,128
  Compensatory element of stock
    issuances (for general and
    administrative expenses)                               --                  69,227                   69,227
                                        ---------------------   ---------------------    ---------------------

      TOTAL EXPENSES                                  104,393                 560,962                  665,355
                                        ---------------------   ---------------------    ---------------------

      OPERATING LOSS                                 (104,393)               (560,962)                (665,355)

INTEREST EXPENSE                                           --                  12,537                   12,537
                                        ---------------------   ---------------------    ---------------------

      NET LOSS                          $            (104,393)  $            (573,499)   $            (677,892)
                                        =====================   =====================    =====================

Basic and Diluted Loss Per
  Common Share                          $               (0.04)  $               (0.14)
                                        =====================   =====================


Weighted Average Common Shares
  Basic and Diluted                                 2,615,375               4,136,013
                                        =====================   =====================
</TABLE>

See notes to consolidated financial statements.

                                      F-4

<PAGE>

                          FBO AIR, INC. AND SUBSIDIARY
                        (A Development Stage Enterprise)

               CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY

   For the Period from January 17, 2003 (Inception) through December 31, 2004


<TABLE>
<CAPTION>
                                                                                                 Deficit
                                                                                               Accumulated
                                                                              Additional         During            Total
                                                      Common Stock              Paid-in        Development     Stockholders'
                                             -----------------------------
                                                Shares          Amount          Capital           Stage         Deficiency
                                             -------------   -------------   -------------    -------------    -------------

<S>                                         <C>              <C>             <C>              <C>              <C>
BALANCE - January 17, 2003 (Inception)           2,615,375   $       2,616   $      (2,616)   $          --    $          --


  Net loss                                              --              --              --         (104,393)        (104,393)
                                             -------------   -------------   -------------    -------------    -------------

BALANCE -  December 31, 2003                     2,615,375           2,616          (2,616)        (104,393)        (104,393)


  Capitalization of deficit at
    time of incorporation                               --              --        (104,393)         104,393               --
  Conversion of advances from affiliates -
    January 4, 2004                                     --              --          94,818               --           94,818
  Common stock issued for services on
    June 27, 2004 at $.03 per share              1,906,250           1,906          67,321               --           69,227

  Common stock issued in connection with
    Shadows Bend reverse merger -
    August 20, 2004                              1,504,397           1,504         (20,655)              --          (19,151)

  Net loss                                              --              --              --         (573,499)        (573,499)
                                             -------------   -------------   -------------    -------------    -------------

BALANCE - December 31, 2004                      6,026,022   $       6,026   $      34,475    $    (573,499)   $    (532,998)
                                             =============   =============   =============    =============    =============
</TABLE>

See notes to consolidated financial statements.

                                      F-5

<PAGE>

                          FBO AIR, INC. AND SUBSIDIARY
                        (A Development Stage Enterprise)

                      CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                            For the Period                                   For the Period
                                                         from January 17, 2003          For the           from January 17, 2003
                                                             (Inception)to            Year Ended             (Inception) to
                                                           December 31, 2003       December31, 2004         December 31, 2004
                                                         ---------------------   ---------------------    ---------------------
<S>                                                      <C>                     <C>                      <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net loss                                               $            (104,393)  $            (573,499)   $            (677,892)
                                                         ---------------------   ---------------------    ---------------------
    Adjustments to reconcile net loss to net cash used
      in operating activities:
      Compensatory element of stock issuances                               --                  69,227                   69,227
      Amortization of option on lease of real estate                        --                     200                      200
    Changes in operating assets and liabilities:
      Due from stockholder                                                  --                 (15,510)                 (15,510)
      Prepaid insurance                                                     --                  (2,668)                  (2,668)
      Accounts payable and accrued expenses                              9,575                 169,967                  179,542
                                                         ---------------------   ---------------------    ---------------------

        TOTAL ADJUSTMENTS                                                9,575                 221,216                  230,791
                                                         ---------------------   ---------------------    ---------------------

        NET CASH USED IN OPERATING
          ACTIVITIES                                                   (94,818)               (352,283)                (447,101)
                                                         ---------------------   ---------------------    ---------------------

CASH FLOWS FROM INVESTING ACTIVITIES
  Purchase deposit for acquisition                                          --                 (10,000)                 (10,000)
  Purchase of Option on lease of real estate                                --                  (3,600)                  (3,600)
                                                         ---------------------   ---------------------    ---------------------

        NET CASH USED IN INVESTING
          ACTIVITIES                                                        --                 (13,600)                 (13,600)
                                                         ---------------------   ---------------------    ---------------------

CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from the sale of convertible notes                               --                 380,000                  380,000
  Advances from affiliates                                              94,818                      --                   94,818
                                                         ---------------------   ---------------------    ---------------------

        NET CASH PROVIDED BY FINANCING
          ACTIVITIES                                                    94,818                 380,000                  474,818
                                                         ---------------------   ---------------------    ---------------------

        NET INCREASE IN CASH                                                --                  14,117                   14,117

CASH - Beginning                                                            --                      --                       --
                                                         ---------------------   ---------------------    ---------------------

CASH - Ending                                            $                  --   $              14,117    $              14,117
                                                         =====================   =====================    =====================
</TABLE>

See notes to consolidated financial statements.

                                      F-6

<PAGE>

                          FBO AIR, INC. AND SUBSIDIARY
                        (A Development Stage Enterprise)

                CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued


<TABLE>
<CAPTION>
                                                            For the Period                                   For the Period
                                                         from January 17, 2003          For the           from January 17, 2003
                                                             (Inception)to            Year Ended             (Inception) to
                                                           December 31, 2003       December31, 2004         December 31, 2004
                                                         ---------------------   ---------------------    ---------------------
<S>                                                      <C>                     <C>                      <C>

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
  Cash paid during the periods for:

    Interest                                             $                  --   $                  --    $                  --
                                                         =====================   =====================    =====================
    Income taxes                                         $                  --   $                  --    $                  --
                                                         =====================   =====================    =====================

  Non-cash investing and financing activities:

    Accrued liabilities assumed in the merger            $                  --   $              19,151    $              19,151
                                                         =====================   =====================    =====================
    Advances from affiliates converted to equity         $                  --   $              94,818    $              94,818
                                                         =====================   =====================    =====================
</TABLE>

      In connection with the Shadows Bend merger,  liabilities  assumed exceeded
assets acquired by $19,151.

See notes to consolidated financial statements.

                                      F-7

<PAGE>

                          FBO AIR, INC. AND SUBSIDIARY
                        (A Development Stage Enterprise)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE  1 - Nature of Operations and Basis of Presentation

      Nature of Operations
      FBO Air, Inc., a Development Stage  Enterprise,  ("FBO Air") was formed on
      January 17, 2003 (date of  inception) as a  proprietorship  to acquire and
      operate  fixed  base   operations.   On  January  2,  2004,  FBO  Air  was
      incorporated in the State of Arizona. A fixed base operator ("FBO") is the
      primary provider of services to general aviation aircraft  operators.  FBO
      Air's  business  strategy  is to  purchase  and  consolidate  FBOs  in the
      secondary and tertiary markets located within the United States.

      Business and Reverse Merger
      Effective  August 20,  2004,  Shadows  Bend  Development,  Inc.  ("Shadows
      Bend"), a publicly-traded company with no active business,  entered into a
      merger  transaction  with FBO Air, a privately-held  Arizona  corporation.
      Upon completion of the merger  transaction,  Shadows Bend changed its name
      to FBO  Air,  and the  original  FBO  Air  shareholders  owned  75% of the
      outstanding  shares  of common  stock of the  Company.  Accordingly,  this
      transaction has been accounted for as a reverse merger with FBO Air as the
      acquirer, for accounting purposes, of Shadows Bend. The reverse merger was
      accounted  for as a  recapitalization  of FBO Air  and  the  stockholders'
      equity of FBO Air was  retroactively  restated to its inception on January
      17, 2003. The historical  financial  statements presented are those of FBO
      Air for all periods presented.

      In July 2004,  FBO Air formed FBO Air - Garden  City,  Inc.  ("FBO  Garden
      City") so that in the future FBO Garden City, a  wholly-owned  subsidiary,
      may acquire the net assets and/or stock of a target FBO.  Through December
      31,  2004,  FBO  Garden  City  has not  acquired  an FBO.  FBO Air and its
      wholly-owned subsidiary,  FBO Air Garden City, are hereinafter referred to
      as the "Company."

      Basis of Presentation
      The Company is in the development  stage and its efforts to date have been
      principally  devoted to the organizational  activities of raising capital,
      recruiting and hiring of key personnel,  and  identifying and screening of
      potential acquisitions.

      The  accompanying  financial  statements  have been prepared in accordance
      with Statement of Financial  Accounting Standards No. 7, Development Stage
      Enterprises, since planned principal operations have not yet commenced.

                                      F-8
<PAGE>

                          FBO AIR, INC. AND SUBSIDIARY
                        (A Development Stage Enterprise)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE  2 - Going Concern and Management's Plans

      The Company's  primary source of operating  funds since inception has been
      provided by its shareholders  and convertible note financing.  The Company
      intends  to raise  additional  capital  through  private  debt and  equity
      investors.  The Company is currently a development  stage  enterprise  and
      there is no assurance that these funds,  if raised,  will be sufficient to
      enable the Company to fully complete its  development  activities,  attain
      profitable  operations or continue as a going concern.  As of December 31,
      2004, the Company had  stockholders'  and working capital  deficiencies of
      $532,998  and  $166,398,  respectively.  The Company  had no revenues  and
      incurred an operating loss of $677,892  during the period from January 17,
      2003 (date of inception) through December 31, 2004.

      Management has taken steps to improve the Company's  liquidity.  There can
      be no assurance that the Company will be successful in these endeavors and
      therefore  may  have to  consider  other  alternatives.  The  Company  has
      obtained an extension from the holders of its  convertible  notes to defer
      the start of  interest  payments  until after the closing of the first FBO
      acquisition.  In addition, the Company has minimized its overhead costs by
      limiting its full time employees to just one, the Company's President.

      The accompanying consolidated financial statements have been prepared on a
      going concern  basis,  which  contemplates  the  realization of assets and
      satisfaction  of  liabilities  in the normal course of business.  However,
      there is  substantial  doubt about the Company's  ability to continue as a
      going concern.  These consolidated financial statements do not include any
      adjustments  relating  to the  recovery  of  the  recorded  assets  or the
      classification  of the  liabilities  that  might be  necessary  should the
      Company be unable to continue as a going concern.

NOTE  3 - Summary of Significant Accounting Policies

      Principles of Consolidation
      The consolidated  financial statements include the accounts of FBO Air and
      its wholly-owned subsidiary FBO Garden City. All significant  intercompany
      accounts and transactions have been eliminated in consolidation.

      Use of Estimates
      The  preparation of the  consolidated  financial  statements in conformity
      with U.S. generally accepted accounting  principles requires management to
      make  estimates  and  assumptions  that  affect the  amounts of assets and
      liabilities  and  disclosure of contingent  assets and  liabilities at the
      date of the financial  statements and the reported amounts of revenues and
      expenses  during the reporting  period.  Actual  results could differ from
      those estimates.


                                       F-9
<PAGE>

                          FBO AIR, INC. AND SUBSIDIARY
                        (A Development Stage Enterprise)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE  3 - Summary of Significant Accounting Policies (continued)

      Deposits
      Deposits   consists  of  advance  payments  made  to  secure   contractual
      obligations of the Company.

      Option on Real Estate Lease
      The option on a real estate  lease  consists  of a  purchased  right for a
      period  of time to enter  into a lease of real  property.  The  option  is
      amortized on a straight-line basis over the option period.

      Income Taxes
      The Company  was a  proprietorship  for the period  from  January 17, 2003
      through  December 31, 2003. The  proprietorship  itself is not a taxpaying
      entity for purposes of Federal and State income  taxes.  Federal and State
      income taxes of the  proprietor  are computed on its total income from all
      sources. Accordingly, no provision for income taxes is made for the period
      from January 17, 2003 (date of inception)  through  December 31, 2003. Tax
      expense  would not have been  different  had the Company been a tax paying
      entity.

      As of January 2, 2004 (date of  incorporation),  the Company  accounts for
      income  taxes  using the  liability  method as required  by  Statement  of
      Financial Accounting Standards No. 109, Accounting for Income Taxes ("SFAS
      109").  Under  this  method,  deferred  tax  assets  and  liabilities  are
      determined based on differences  between their financial reporting and tax
      basis of assets and  liabilities.  The Company was not required to provide
      for a provision for income taxes for the year ended  December 31, 2004, as
      a result  of net  operating  losses  incurred  during  the  period.  As of
      December 31, 2004, the Company has available approximately $500,000 of net
      operating  losses  ("NOL")  available  for income tax purposes that may be
      carried   forward  to  offset  future  taxable   income,   if  any.  These
      carryforwards  expire in various years through 2024. At December 31, 2004,
      the  Company has a deferred  tax asset of  approximately  $200,000,  which
      consists  primarily of  temporary  differences  relating to net  operating
      losses.  The  Company's  deferred  tax asset has been fully  reserved by a
      valuation  allowance  since  realization of its benefit is uncertain.  The
      difference  between the statutory rate of 35% and the Company's  effective
      tax  rate  of 0% is due to the  increase  in the  valuation  allowance  of
      approximately   $200,000.   The  Company's  ability  to  utilize  its  NOL
      carryforwards  may be subject to an annual  limitation  in future  periods
      pursuant to Section 382 of the Internal Revenue Code of 1986, as amended.


                                      F-10
<PAGE>

                          FBO AIR, INC. AND SUBSIDIARY
                        (A Development Stage Enterprise)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE  3 - Summary of Significant Accounting Policies (continued)

      Fair Value of Financial Instruments
      The reported  amounts of our  financial  instruments,  including  accounts
      payable and accrued liabilities, approximate their fair value due to their
      short  maturities.  The carrying  amounts of debt  approximate  fair value
      since the debt  agreements  provide for  interest  rates that  approximate
      market.

      Stock Options
      As  permitted  by FASB  Statement  No.  123,  Accounting  for  Stock-Based
      Compensation  ("FAS 123"),  which establishes a fair value based method of
      accounting for equity-based compensation plans, the Company has elected to
      follow  Accounting  Principles Board Opinion No. 25,  Accounting for Stock
      Issued to Employees ("APB 25") for recognizing  equity-based  compensation
      expense for financial  statement  purposes.  Under APB 25, no compensation
      expense is recognized at the time of option grant if the exercise price of
      the  employee  stock option is fixed and equals or exceeds the fair market
      value of the  underlying  Common Stock on the date of grant and the number
      of shares to be issued  pursuant to the exercise of such options are known
      and fixed at the grant date.

      The Company  accounts for equity  instruments  issued to  non-employees in
      accordance  with the  provisions  of FAS 123 and the Emerging  Issues Task
      Force in Issue No.  96-18,  Accounting  for  Equity  Instruments  That Are
      Issued to Other Than  Employees  for  Acquiring,  or In  Conjunction  with
      Selling,  Goods or Services which require that such equity instruments are
      recorded at their fair value on the measurement  date,  which is typically
      the date the services are performed.

      In December  2002,  the FASB issued  Statement  No.  148,  Accounting  for
      Stock-Based  Compensation-Transition  and  Disclosure  ("FAS  148").  This
      standard  amends the disclosure  requirements  of FAS 123 for fiscal years
      ending after  December 15, 2002 to require  prominent  disclosure  in both
      annual and  interim  financial  statements  about the method  used and the
      impact on  reported  results.  The  Company  follows  the  disclosure-only
      provisions of FAS 123 which require disclosure of the pro forma effects on
      net income (loss) as if the fair value method of accounting  prescribed by
      FAS 123 had been adopted, as well as certain other information.

      Option valuation models require the input of highly subjective assumptions
      including the expected life of the option.  Because the Company's employee
      stock options have characteristics  significantly  different from those of
      traded options,  and because changes in the subjective  input  assumptions
      can materially  affect the fair value estimate,  in management's  opinion,
      the existing models do not  necessarily  provide a reliable single measure
      of the fair value of its employee stock options.


                                      F-11
<PAGE>

                          FBO AIR, INC. AND SUBSIDIARY
                        (A Development Stage Enterprise)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE  3 - Summary of Significant Accounting Policies (continued)

      Net Loss Per Common Share
      Basic net loss per common share is computed based on the weighted  average
      number of shares of common stock outstanding during the periods presented.
      Common stock  equivalents,  consisting  of options and  convertible  notes
      discussed in the notes to the financial  statements,  were not included in
      the  calculation  of the diluted loss per share  because  their  inclusion
      would  have had the  effect of  decreasing  the loss per  share  otherwise
      computed. The total shares issuable upon the exercise of stock options and
      the  convertible  notes as of  December  31,  2004  and 2003  approximated
      4,168,000 and 0, respectively.

      Effect of Recent Accounting Pronouncements
      In December  2004,  the FASB issued SFAS No. 123R "Shared Based  Payment."
      This  statement is a revision of SFAS Statement No. 123,  "Accounting  for
      Stock-Based  Compensation" and supersedes APB Opinion No. 25,  "Accounting
      for Stock Issued to Employees," and its related  implementation  guidance.
      SFAS 123R  addresses  all forms of shared based  payment  ("SBP")  awards,
      including  shares  issued  under  employee  stock  purchase  plans,  stock
      options,  restricted stock and stock appreciation rights. Under SFAS 123R,
      SBP  awards  result in a cost that will be  measured  at fair value on the
      awards'  grant  date,  based on the  estimated  number of awards  that are
      expected  to  vest  and  will be  reflected  as  compensation  cost in the
      historical  financial  statements.  This statement is effective for public
      entities that file as small business  issuers - as of the beginning of the
      first interim or annual  reporting  period that begins after  December 15,
      2005.  The  Company is in the process of  evaluating  whether the SFAS No.
      123R will have a significant  impact on the Company's  overall  results of
      operations or financial position.

      In May 2003, the Financial Accounting Standards Board ("FASB") issued SFAS
      No.   150,   "Accounting   for   Certain   Financial    Instruments   with
      Characteristics of Both Liabilities and Equity".  SFAS No. 150 establishes
      standards for classification and measurement in the statement of financial
      position of certain  financial  instruments with  characteristics  of both
      liabilities  and  equity.  It  requires   classification  of  a  financial
      instrument  that is within its scope as a  liability  (or an asset in some
      circumstances).  SFAS  No.  150 is  effective  for  financial  instruments
      entered into or modified after May 31, 2003 and,  otherwise,  is effective
      at the  beginning of the first  interim  period  beginning  after June 15,
      2003.  The Company  adopted SFAS No. 150 in the third quarter of 2003. The
      adoption did not have an impact on the consolidated financial statements.


                                      F-12
<PAGE>

                          FBO AIR, INC. AND SUBSIDIARY
                        (A Development Stage Enterprise)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE  3 - Summary of Significant Accounting Policies (continued)

      Effect of Recent Accounting Pronouncements (continued)

      In  January   2003,  as  revised  in  December   2003,   the  FASB  issued
      Interpretation  No. 46 ("FIN 46"),  "Consolidation  of  Variable  Interest
      Entities,  an  Interpretation  of ARB No.  51."  FIN 46  requires  certain
      variable interest  entities to be consolidated by the primary  beneficiary
      of the  entity  if the  equity  investors  in the  entity  do not have the
      characteristics  of a  controlling  financial  interest  or  do  not  have
      sufficient equity at risk for the entity to finance its activities without
      additional  subordinated  financial support from other parties.  FIN 46 is
      effective for all new variable interest entities created or acquired after
      January 31, 2003. For variable interest entities created or acquired prior
      to  February  1, 2003,  the  provisions  of FIN 46 must be applied for the
      first  interim or annual  period  ending  after  December  15,  2004.  The
      adoption  of FIN 46 for  provisions  effective  during 2003 did not have a
      material impact on the consolidated financial statements.

      In November  2004,  the FASB  ratified the release of Emerging  Issue Task
      Force ("EITF") Issue No. 04-08 ("EITF 04-08"), "The Effect of Contingently
      Convertible Instruments on Diluted Earnings per Share." EITF 04-08 reached
      a  consensus   that   contingently   convertible   instruments,   such  as
      contingently  convertible debt,  contingently  convertible preferred stock
      and other such  securities  should be  reflected  in diluted  earnings per
      share (if  dilutive)  regardless  of whether the market price  trigger has
      been met. The consensus is effective for  reporting  periods  ending after
      December  15,  2004.  EITF  04-08  did not have a  material  impact on the
      consolidated financial statements.

NOTE  4 - Due from Stockholder

      As of December 31, 2004,  the Company had advances due from a  stockholder
      in the amount of $15,510 .

NOTE  5 - Deposit for Acquisition

      In October  2004,  the Company  paid a sum of $10,000 as an earnest  money
      deposit  to  the  two  principal  stockholders  of an FBO  located  in the
      northeast  region of the  country  (See  Note 8).  This  payment  is to be
      applied to the total purchase price of approximately $2,800,000 and may be
      refunded under certain circumstances.

                                      F-13
<PAGE>

                          FBO AIR, INC. AND SUBSIDIARY
                        (A Development Stage Enterprise)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE  6 - Convertible Notes

      In April 2004, the Company entered into a convertible  note agreement with
      a group of investors  ("Investors") to purchase five-year,  8% convertible
      notes in the  aggregate  principal  amount  of  $400,000  as  follows:  a)
      $130,000  upon  signing;  b)  $270,000  upon the later to occur of: 1) the
      reverse merger transaction, and 2) the acquisition of an FBO as defined in
      the  agreement.  The  convertible  notes mature April 2009,  with interest
      payable  quarterly,  beginning with the first interest payment,  which was
      due December 1, 2004.  During  January 2005,  the Company  entered into an
      amendment  of the  agreement  with the  holder  of the  convertible  notes
      whereby the due date of the first interest payment is deferred to the date
      of closing of the first FBO acquisition (See Note 9[A]).

      In April 2004,  the Investors  funded the sale of the initial  $130,000 of
      convertible notes under the agreement.  During August 2004,  October 2004,
      November 2004 and December 2004, the Investors  waived one provision under
      their  agreement  and funded the sale of  $125,000,  $45,000,  $40,000 and
      $40,000,  respectively of convertible  notes under the agreement (See Note
      9[A]).

      The Company has the option to pay interest in cash or shares of the Common
      Stock. For the purpose of determining the number of shares to be issued in
      payment of  interest,  such shares shall be valued at the average of their
      fair market  value during the five  trading  days  preceding  the interest
      payment date. The notes plus accrued interest are convertible  through the
      maturity  date,  into 40%, as defined in the  agreement,  of the Company's
      outstanding  shares of the Common  Stock.  In  addition,  the holders have
      certain piggyback  registration,  tag along and other rights as defined in
      the agreement.  The Company is required to maintain certain  financial and
      other covenants.

NOTE  7 - Stockholders' Deficiency

      On January 4, 2004 (date of  incorporation),  the Company  capitalized the
      deficit of $104,393 incurred for the period from January 17, 2003 (date of
      inception)  through  December  31,  2003,  during  which  time,  prior  to
      incorporation, the Company operated as a proprietorship.

      On January 4, 2004,  amounts owed to affiliates of $94,818 were  converted
      into additional paid-in capital.

                                      F-14
<PAGE>

                          FBO AIR, INC. AND SUBSIDIARY
                        (A Development Stage Enterprise)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE  7 - Stockholders' Deficiency (continued)

      During June 2004, the Company issued  1,906,250 shares of the Common Stock
      as consideration for services  performed by various  individuals valued in
      the aggregate amount of $69,227.

      On August 20, 2004, the Company issued 1,504,397 shares in connection with
      its  reverse  merger  with  Shadows  Bend and the  assumption  of existing
      Shadows Bend  liabilities  of $19,151.  In connection  therewith,  Shadows
      Bend's shareholders approved a 1 for 4 reverse stock split,  increased the
      authorized  common shares to 100,000,000 and authorized  10,000,000 shares
      of preferred stock.

      Stock Options

      During September 2004, the Board of Directors  granted options to purchase
      an aggregate  of 150,000  shares,  25,000 to each of the four  independent
      directors  and 50,000 to a  consultant/shareholder  of the Company.  These
      options  have an  exercise  price of $0.01 per share and expire four years
      from the date of grant. Options granted to non-employees are accounted for
      under SFAS No. 123, whereby  compensation  measurement of equity awards is
      based  on  their  fair  value.  The fair  market  value  of these  options
      estimated  at the date of grant  using the  Black-Scholes  option  pricing
      model was not deemed material.

NOTE  8 - Commitments and Contingencies

      Operating Lease

      In May 2004, the Company entered into a non-cancelable  operating lease of
      an automobile  for a Company  officer  expiring in August 3, 2008.  Future
      minimum lease payments under this operating lease at December 31, 2004 are
      as follows:

                     Years Ended December 31:                Amount
               ------------------------------------------------------------
                               2005                         $   5,640
                               2006                             5,640
                               2007                             3,290
                                                            ---------

                                                              $14,570
                                                            =========

                                      F-15
<PAGE>

                          FBO AIR, INC. AND SUBSIDIARY
                        (A Development Stage Enterprise)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE  8 - Commitments and Contingencies (continued)

      Proposed Acquisitions
      The Company has negotiated and issued letters of intent for four potential
      FBO acquisitions: 1) An FBO located in Garden City, Kansas, requiring cash
      at closing of  approximately  $435,000  and the  issuance of a 5% note for
      approximately $240,000 to be paid out over 18 months; 2) An FBO located in
      the  northeast  region of the country,  acquiring the stock of the company
      with a combination of cash and debt totaling approximately  $2,800,000; 3)
      An FBO located in the southern  region of the country,  requiring  cash at
      closing of  approximately  $1,250,000;  and 4) A flight school,  including
      certain  aircraft,  located  in  the  southwest  region  of  the  country,
      requiring  a  combination  of  cash  and  notes   totaling   approximately
      $2,495,000.  Completion  of these  acquisitions  is subject  to  customary
      closing  conditions  including  the  raising of  capital.  There can be no
      assurance that any or all of these acquisitions will be consummated.

      Consulting Agreements
      The  Company   entered  into  a  six-month   engagement   agreement   (the
      "Agreement") with a financial advisor in April 2004, whereby the financial
      advisor  will provide  advisory  services for  financial  structuring  and
      planning,  bridge financing,  special situation transactional services and
      private  equity  financing.  The  agreement  calls for an  initial  fee of
      $15,000 plus $5,000 per month for six months, payable after the closing of
      the first FBO  acquisition.  Included  in  accounts  payable  and  accrued
      expenses at December 31, 2004 is an obligation of $45,000 pursuant to this
      agreement.

      In  January  2004,  the  Company  entered  into  a  three-year  consulting
      agreement  ("Consulting  Agreement")  with a stockholder to provide merger
      and acquisition  advisory  services,  effective upon an  acquisition.  The
      agreement  calls for annual  consulting  fees of  $125,000,  $150,000  and
      $200,000,  respectively.  For each year of the  agreement  the  consultant
      shall be issued an option to purchase 50,000 shares of the Common Stock of
      the Company.  As of December 31, 2004, the agreement was not in effect. In
      September  2004,  in lieu of the stock  option to be  granted in the first
      year pursuant to the Consulting Agreement,  the Board of Directors granted
      an option to purchase  50,000 shares of Common Stock  exercisable  at $.01
      per share,  which shall vest on September 30, 2005 and expire on September
      29, 2008.


                                      F-16
<PAGE>

                          FBO AIR, INC. AND SUBSIDIARY
                        (A Development Stage Enterprise)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE  8 - Commitments and Contingencies, continued

      Employment Agreements
      In  January  2004,  the  Company  entered  into  a  three-year  employment
      agreement  with its  President  and Chief  Executive  Officer,  which will
      become  effective upon the closing of an FBO  acquisition and provides for
      an annual salary of $125,000, $150,000 and $200,000, respectively, plus an
      annual  incentive  bonus based upon the Company's  Earnings  Before Income
      Taxes, Depreciation and Amortization ("EBITDA"), as further defined in the
      agreement.  In addition, the executive is entitled to receive an option to
      purchase  shares of the Common Stock in an amount to be  determined by the
      Board of  Directors.  As of December 31, 2004,  the  agreement  was not in
      effect and no option has been granted.

      In  October  2004,  the  Company  entered  into  a  three-year  employment
      agreement  with an executive to serve as its Chief  Financial  Officer and
      Executive Vice President.  The executive's employment by the Company under
      this  agreement  shall  commence in two weeks from the date of the initial
      FBO acquisition and the firm commitment and written agreement by the Board
      of  Directors  in securing  no less than $20.0  million in debt and equity
      financing by the Company.  This agreement provides for an annual salary of
      $125,000,  $150,000 and $200,000,  respectively,  plus an annual incentive
      bonus upon the Company's EBITDA. In addition, the executive is entitled to
      receive an option to purchase  at the listed  price at the date of grant a
      total of 750,000 shares,  with an option to purchase  250,000 shares to be
      granted  by the  Company  on March 1 of each of the years  2005,  2006 and
      2007.  The options  shall vest at the time of issuance  and the  executive
      shall have five years to acquire the stock from the date of  issuance.  As
      of December 31, 2004,  the  agreement  was not in effect and no option has
      been granted.

NOTE  9 - Subsequent Events

      [A] Convertible Notes
      During January 2005, the Investors  waived one provision  under their loan
      agreement and funded the sale of the remaining  $20,000  convertible notes
      under the agreement.  Also,  during January 2005, the Company entered into
      an amendment of the agreement  with the Investors  whereby the due date of
      the first interest payment is deferred to the date of closing of the first
      FBO acquisition (see Note 6).

                                      F-17
<PAGE>

                          FBO AIR, INC. AND SUBSIDIARY
                        (A Development Stage Enterprise)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE  9 - Subsequent Events, continued

      [B] Due from Stockholder
      During February 2005, a stockholder  repaid advances  totaling $2,500 (See
      Note 4).

      [C] Authorization of Series A Convertible Preferred Stock
      During February 2005, the Company  authorized the issue of 1,000 shares of
      preferred stock,  designated as Series A Convertible Preferred Stock ("the
      Convertible  Preferred Stock"),  each share having a Stated Value ("Stated
      Value") of $10,000.  These shares provide for cumulative  dividends at the
      annual rate of 8%, payable  quarterly and mature three years from the date
      of issue. The cumulative  dividend,  at the option of the Company,  may be
      paid  either  in cash  or by the  issuance  of  additional  shares  of the
      Convertible  Preferred  Stock.  The holders of the  Convertible  Preferred
      Stock and the  holders of the shares of the Common  Stock  shall vote as a
      single class,  with the holders of the Convertible  Preferred Stock having
      the number of votes based upon the formula for the conversion to shares of
      the Common  Stock,  as  provided  below.  The  holders of the  Convertible
      Preferred  Stock  have the right to elect one  director  to the  Company's
      Board of Directors.

      The Convertible  Preferred Stock is convertible  into shares of the Common
      Stock.  The shares  shall  automatically  convert  upon (a) the  Company's
      realization of gross proceeds exceeding $5,000,000 from the sale of equity
      securities (a "Qualified Follow-On  Offering"),  separate and apart from a
      private  placement in which the shares of the Convertible  Preferred Stock
      are  offered  for  sale,  or (b) at such time as the  traded  price of the
      Company's  Common  Stock  exceeds 2.5 times the Initial  Conversion  Price
      ("Conversion  Price"),  and under both (a) and (b), the shares  subject to
      conversion are fully registered  shares. At the option of the holder,  the
      shares, in whole or in part, may be converted at any time.

      Subject  to  certain  adjustments  in the event of stock  splits and other
      events,  as provided  in the  agreement,  and upon the sale of  additional
      equity  securities at a price below the Conversion  Price,  the Conversion
      Price is $0.30 per share.  Each share of Preferred Stock will convert into
      that number of shares of Common  Stock  determined  by dividing the Stated
      Value  of each  share of  Convertible  Preferred  Stock by the  Conversion
      Price.  In the case of a  mandatory  conversion  on account of a Qualified
      Follow-on Offering,  then at the option of the holder, the shares shall be
      converted at (a) the Conversion  Price, or (b) at the same price that such
      securities are being sold in such Qualified Follow-On  Offering,  with the
      holder, in this case, also receiving a premium of an additional 10% in the
      number of such shares.  Under  certain  conditions  whereupon  the Company
      sells shares of Common Stock at a price below the Conversion  Price,  then
      the Conversion Price shall be reduced, as provided for in the agreement.


                                      F-18
<PAGE>

                          FBO AIR, INC. AND SUBSIDIARY
                        (A Development Stage Enterprise)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE  9 - Subsequent Events, continued

      [C] Authorization of Series A Convertible Preferred Stock, continued
      On the third  anniversary of the original date of issue of the Convertible
      Preferred   Stock,  the  Company  shall  redeem  for  cash  all  remaining
      outstanding  shares at a redemption price equal to the Stated Value,  plus
      all accrued and unpaid dividends.

      In  the  event  of a  liquidation  of  the  Company,  the  holders  of the
      Convertible  Preferred Stock then  outstanding will be entitled to receive
      115% of the  stated  value of each  share,  plus any  accrued  and  unpaid
      dividends.

      During  February  2005,  investors  purchased  for  cash  $100,000  of the
      Convertible Preferred Stock.

      [D] Seeking Financing
      The  Company  has  agreed  with a firm on a  non-exclusive  basis  to seek
      financing.

      [E] Litigation
      In early 2005,  the  Company  was served with a complaint  which names the
      Company,   among   others,   as  a  defendant  in  a  suit  brought  by  a
      broker-dealer,  seeking  damages of  approximately  $100,000  arising from
      Shadows  Bend's  cancellation  of a stock  certificate  in the year  2002,
      evidencing  shares  allegedly  sold by the  plaintiff for the account of a
      shareholder of Shadows Bend.  The Company  disputes the  allegations,  has
      engaged  local trial  counsel and intends to  vigorously  defend itself in
      this matter.

                                      F-19
<PAGE>

ITEM  8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
          FINANCIAL DISCLOSURE

      Not applicable. Previously reported on Form 8-K.



                                       17
<PAGE>

ITEM 8A. CONTROLS AND PROCEDURES

      The  Company's  principal  executive  officer,  who  is  also  the  acting
principal  financial  officer,  has evaluated the effectiveness of the Company's
"disclosure  controls and procedures," as such term is defined in Rule 13a-15(e)
of the Securities  Exchange Act of 1934, as amended, as of the end of the period
covered by this Annual Report on Form 10-KSB. The evaluation process,  including
the inherent limitations on the effectiveness of such controls and procedures is
more fully discussed below. Based upon his evaluation,  the principal  executive
officer,  who is also the acting principal financial officer, has concluded that
the  Company's  disclosure  controls  and  procedures,  did  contain a  material
weakness.

      This material weakness is the lack of the necessary  corporate  accounting
resources.  At the current time,  the  Company's  only full time  employee,  the
Company's Chief Executive  Officer,  solely has the  responsibility for receipts
and  disbursements.  The Company  employs a financial  consultant to prepare the
periodic  financial  statement  and public  filings.  Reliance on these  limited
resources  impairs  our  ability to provide  for  segregation  of duties and the
ability to ensure  consistently  complete and accurate financial  reporting,  as
well as disclosure controls and procedures. In order to correct this deficiency,
we have entered into an  agreement  with an executive  that will become our full
time Chief Financial Officer at such time as the Company has adequate  financial
resources.  In  addition,  as the Company  grows,  and as resources  permit,  we
project that the new Chief Financial Officer will hire such additional competent
financial  personnel  to assist in the  segregation  of duties  with  respect to
financial reporting, and Sarbanes-Oxley Section 404 compliance.

      We believe  that,  for the  reasons  described  above,  we will be able to
improve our  financial  reporting and  disclosure  controls and  procedures  and
remedy  the  material  weakness  identified  above.   Because  of  the  inherent
limitations  in all control  systems,  no  evaluation  of  controls  can provide
absolute  assurance that all control issues and instances of fraud, if any, will
be or have been detected.

      Except as  described  above,  there  were no  significant  changes  in our
internal  controls over financial  reporting that occurred during the year ended
December 31, 2004 that have  materially  affected,  or are reasonably  likely to
materially affect, our internal control over financial reporting.

LIMITATIONS ON THE EFFECTIVENESS OF CONTROLS

      We  believe  that a  control  system,  no  matter  how well  designed  and
operated,  cannot provide absolute  assurance that the objectives of the control
system are met, and no  evaluation  of controls can provide  absolute  assurance
that all control  issues and instances of fraud,  if any,  within a company have
been detected.  Our disclosure controls and procedures are designed to provide a
reasonable  assurance  of achieving  their  objectives  and our Chief  Executive
Officer has  concluded  that such controls and  procedures  are effective at the
"reasonable  assurance"  level.  However,  we  not  as yet  have  any  operating
businesses.

                                       18
<PAGE>

                                    PART III


ITEM  9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

      Set  forth  below  are the  names as of March  22,  2005 and the  business
experience of the directors and executive officers of the Company:

       NAME           AGE                    POSITION
-------------------   ---   ----------------------------------------------------
Ronald J. Ricciardi    43   President, Chief Executive and Financial Officer and
                            Director
Alvin S. Trenk         75   Director, Chairman of the Board
William R. Colaianni   58   Director
Jeffrey B. Mendell     57   Director
George Reenstra        52   Director

ALVIN S. TRENK - CHAIRMAN OF THE BOARD

      Mr.  Trenk was  elected as a  director  and  Chairman  of the Board of the
Company effective with the Merger on August 20, 2004.

      Mr.  Trenk has  served as  Chairman & CEO of Air  Pegasus  since 1981 and,
since 1993, as Chairman,  President & CEO of Sightseeing Tours of America,  Inc.
and Liberty Helicopters,  Inc; privately held corporations  operating public use
heliports  in New York and  providing  helicopter  air tours and charter and air
services.  Mr. Trenk has also been Chairman & CEO of TechTron,  Inc. since 1980.
TechTron  is a privately  owned  holding  company  with  investment  emphasis on
emerging  global  market  opportunities.  From 1976 to 1980,  Mr. Trenk was Vice
Chairman of Kenton Corporation,  a diversified publicly traded corporation where
he was also  President & CEO of Charles  Town Turf Club,  owner and  operator of
thoroughbred  race tracks in West Virginia;  and Chairman & CEO of International
Health Company,  which owned and operated a national chain of artificial  kidney
centers.

RONALD J. RICCIARDI - PRESIDENT & CEO, DIRECTOR

      Mr.  Ricciardi was elected as the President and a director of FBO Air, the
Arizona corporation, and designated as its Chief Executive Officer on January 2,
2004 and was elected the President and a director of the Company and  designated
as its Chief Executive Officer effective with the Merger on August 20, 2004.

      Mr.  Ricciardi is a senior  executive  with extensive  general  management
experience in entrepreneurial and large companies. He is a strategic leader with
merger/acquisition  and  integration  success.   Before  joining  FBO  Air,  Mr.
Ricciardi was President & CEO of P&A Capital  Partners,  Inc., an  entertainment
finance company  established to fund the distribution of independent  films. Mr.
Ricciardi was also  co-founder,  Chairman and CEO of a high  technology  service
provider for which he developed a consolidation  strategy,  negotiated potential
merger/acquisition   candidates,   published  private  placement  materials  and
executed  numerous  private,  institutional  and venture capital  presentations.
After a  management  career  at  Pepsi-Cola  Company  and the  Perrier  Group of
America,  Mr.  Ricciardi  was  President  & CEO of a leading  regional  consumer
products company,  where he provided strategic and  organizational  development,
and led a consolidation  effort that included 14  transactions,  which more than
tripled company revenue over four years.

WILLIAM R. COLAIANNI - DIRECTOR

      Mr.  Colaianni  was elected as a director of the Company on September  30,
2004.

                                       19
<PAGE>

      Mr.  Colaianni  is  currently  a member of  Holding  Capital  Group LLC, a
private  investment  banking firm that invests in smaller  middle market private
companies.  Holding  Capital has been in business for over 25 years and has made
investments  in  over  300  deals.  Mr.  Colaianni  joined  the  firm  in  1983.
Structuring and financing of unique transactions is Holding Capital's expertise.
Mr. Colaianni also sits on the board of directors for seven companies and is the
President of a $35 million veneer and plywood company in Georgia.

      Prior to  joining  Holding  Capital,  Mr.  Colaianni  was Chief  Operating
Officer of Adidas Sports and Leisure, and was President of Pony footwear. He was
also a Vice  President for Bankers Trust  Company,  New York, in charge of asset
based lending.  And, before beginning his professional career, Mr. Colaianni was
a captain in the US Army.

JEFFREY B. MENDELL - DIRECTOR

      Mr.  Mendell was elected as a director  of the  Company on  September  30,
2004.

      Mr.  Mendell has over 30 years of real estate  experience  in the New York
metropolitan  area.  Presently,  he owns and manages JBM Realty Capital Corp., a
private real estate  company  active in the  development,  financing and sale of
residential  and  commercial   projects  in  the  New  York  metropolitan  area.
Currently,  JBM  Realty is  developing  a 55 unit  rental  apartment  project in
Greenwich,  CT scheduled to complete construction in 2004. This will be a luxury
waterfront  development  offering the finest rental apartments in the market. He
started his career as a lending  officer in the New York real estate  department
of Citibank,  providing  construction loans to Manhattan real estate developers.
In the early  1980's,  as Senior  Vice  President  of Chase  Enterprises  he was
responsible for the development of over 2 million square feet of office,  retail
properties,  plus over 1000 residential  units in Florida.  In the mid-1980's he
joined Jones Lang Wootton,  an  international  investment  bank, as a Partner in
charge of the  finance  group and  closed  over $1  billion  in debt and  equity
transactions.  In 1989,  he was  recruited  by Citicorp to run the New York City
workout  group and was  responsible  for a  portfolio  totaling  $2  billion  in
distressed and  non-performing  loans. In 1992, he became  President of National
Realty &  Development  Corp.,  a private  real estate  development  where he was
responsible  for all aspects of a 14 million  square foot  portfolio of shopping
centers,  office  parks and a  residential  construction  business  based in New
Jersey.

      In 1997, he formed and subsequently  sold, a mortgage banking company that
represented life insurance  companies and other lenders in placing mortgage debt
in the NY  metropolitan  area.  From  1999-2000,  he was President of RFR/Davis,
Davis & Partners and affiliated companies,  the largest residential  development
company in New York City,  where he supervised  all aspects of the  development,
construction  and  management  of a portfolio  of over 1500  luxury  residential
apartments  in  Manhattan.   Projects  completed  during  this  period  included
Wellington  Tower,  Century Tower, and The Empire.  Mr. Mendell is a graduate of
the Wharton  School of Finance and Commerce at the  University of  Pennsylvania,
and is a licensed real estate broker in the State of New York.

GEORGE REENSTRA - DIRECTOR

      Mr.  Reenstra  was elected as a director of the Company on  September  30,
2004.

      Mr. Reenstra began his aviation career as an Army helicopter pilot serving
in Viet Nam 1968-1969.  He is a recipient of the Distinguished  Flying Cross and
the Navy Commendation Medal with a V-Device,  as well as over 25 air medals. Mr.
Reenstra has over 30 years of involvement in civilian aviation,  most notably in
the helicopter  market. In the early 70's as an employee of Bell Helicopter,  he
was  instrumental  in the sale of  multiple  helicopters  to various  first time
buyers at the very  beginning of the  corporate  helicopter  cycle.  He was also
involved with the early introduction of helicopter transportation in the medical
field.  His last  accomplishment  in  helicopter  marketing  and  sales was with
Sikorsky  Aircraft  which  he  left  in  1989 as  National  Sales  Manager.  Mr.
Reenstra's  FBO and aviation  experience  includes the operation and creation of
FBOs at  Teterboro,  New Jersey,  Conroe,  Texas,  Long Beach,  California,  and
Newburg,  New York. He has also assisted  other  individuals  as a consultant in
acquiring FBO properties throughout the United States.  Currently,  Mr. Reenstra
is President of Aircraft  Services Group, a diversified  aircraft  brokerage and
management  company.  He is also President of EVAS Worldwide,  the only approved
cockpit  smoke  protection  device  approved  by the  FAA and  currently  in use
throughout  the  world on Part  121,  135,  91 and  military  aircraft.  He is a
founding  partner of Safety  Operating  Systems  which  provides  corporate  and
airline audits on a worldwide basis.

                                       20
<PAGE>


CODE OF ETHICS

      The Company is in the process of  developing  and  implementing  a Code of
Ethics policy.

COMMITTEES

      The Company's Audit Committee consists of William R. Colaianni as Chairman
and Financial  Expert,  as well as Jeffrey B. Mendell and George  Reenstra.  The
Company's  Compensation  Committee consists of Jeffrey B. Mendell,  Chairman, as
well as George Reenstra and Alvin S. Trenk.

FAMILY RELATIONSHIPS

      There are no family  relationships  among the  directors and the executive
officers of the Company.

OTHER DIRECTORSHIPS

      No director of the Company  serves as a director of a company with a class
of securities  registered  pursuant to Section 12 of the Securities Exchange Act
of 1934,  as amended  (the  "Exchange  Act"),  or any company  registered  as an
investment company under the Investment Company Act of 1940, as amended.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

      As a result of the merger,  effective August 20, 2004, Ronald J. Ricciardi
and Alvin S.  Trenk  became  directors  of the  Company  and Mr.  Ricciardi  its
President  and Chief  Accounting  Officer.  On September  30,  2004,  William R.
Colaianni,  Jeffrey B. Mendell and George  Reenstra  were elected as  directors.
Because none of these persons had a CIK/access  code, the Company had to process
forms for them and, as a result,  all of the Forms 3 (except  for Mr.  Reenstra)
and one Form 4 for Mr. Trenk were late.  With the cooperation of these directors
and executive officers, the Company has set up a system so that there will be no
late filings in the future.  Because he has been out of the country, the Company
is currently processing Mr. Reenstra's application and will file his Form 3 very
shortly.

Each of the  directors or executive  officers of the Company prior to the Merger
has advised the Company that he had no reportable transactions in fiscal 2004.


                                       21
<PAGE>

ITEM  10. EXECUTIVE COMPENSATION

                       COMPENSATION OF EXECUTIVE OFFICERS

      The following table sets forth the annual and long-term  compensation  for
services in all  capacities  for the fiscal year ended December 31, 2004 paid to
Ronald J. Ricciardi.  No other executive officer received compensation exceeding
$100,000 during the fiscal years ended December 31, 2004 and 2003. Mr. Ricciardi
became our Chief  Executive  Officer on January 2, 2004 and was  re-appointed as
Chief Executive Officer on August 20, 2004, in connection with the completion of
the Company's  reverse merger with Shadows Bend. The following  table sets forth
the annual  compensation  paid by the  Company  for  services  performed  on the
Company's  behalf for the fiscal years ended  December 31, 2002,  2003 and 2004,
with respect to those persons who were,  as of December 31, 2004,  the Company's
Chief Executive Officer and the Company's executive officers.


                           SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
                                                                                                            LONG TERM
                                                                 ANNUAL COMPENSATION                    COMPENSATION AWARDS
                                                    -------------------------------------------   ---------------------------------
                                                                                                    SECURITIES
                                                                                                    UNDERLYING
              NAME AND                                                           OTHER ANNUAL     OPTIONS (NUMBER      ALL OTHER
         PRINCIPAL POSITION              YEAR         SALARY          BONUS      COMPENSATION       OF SHARES)       COMPENSATION
-----------------------------------   ----------   -----------   ------------   ---------------   ---------------   ---------------

<S>                                      <C>       <C>           <C>            <C>                      <C>        <C>
Ronald J. Ricciardi,  President and      2004      $   73,000    $    0         $    0                   0          $    0
Chief Executive Officer                  2003      $        0    $    0         $    0                   0          $    0
                                         2002      $        0    $    0         $    0                   0          $    0
</TABLE>

Note:  Mr.  Ricciardi is  compensated at an annual  equivalent  compensation  of
$125,000.

STOCK OPTIONS

      During September 2004, the Board of Directors  granted options to purchase
an aggregate of 150,000 shares, 25,000 to each of the four independent directors
and 50,000 to a  consultant/shareholder  of the Company.  These  options have an
exercise price of $0.01 per share and expire four years from the date of grant.

      In addition,  the Board of Directors  approved  consulting  and employment
agreements,   respectively,  which  included  within  its  terms  the  Company's
agreement,  over a period  of three  years,  to  provide  stock  options  in the
aggregate of 900,000  shares,  150,000 to a  shareholder  and  consultant to the
Company and 750,000 to an executive to serve as the  Company's  Chief  Financial
Officer and Executive Vice President. In addition,  under the agreement with the
Company's  President and CEO, an option to purchase shares may be granted by the
Board of  Directors.  As of March 22, 2005,  the  consulting  agreement  and the
employment agreements with the executive to serve as the Chief Financial Officer
and with the Company's President and CEO are not yet in effect.  Accordingly, no
options have yet been granted hereunder.


                                       22
<PAGE>

DIRECTORS' COMPENSATION

      Directors  who are not  employees  of the Company are entitled to a fee of
$1,000 per board meeting and $750 and $500 per  committee  meeting for committee
chairman and committee member, respectively.  In addition, each outside director
was granted an option to purchase  25,000 shares of the company's  common stock,
with an  exercise  price of $0.01 and which  expire  four years from the date of
grant. Each director is also reimbursed for expenses incurred in connection with
attendance at meetings of the Board of Directors.

EMPLOYMENT AGREEMENTS

      In  January  2004,  the  Company  entered  into  a  three-year  employment
agreement  with its President  and Chief  Executive  Officer,  which will become
effective  upon the closing of an FBO  acquisition  and  provides  for an annual
salary  of  $125,000,  $150,000  and  $200,000,  respectively,  plus  an  annual
incentive  bonus  based  upon  the  Company's   Earnings  Before  Income  Taxes,
Depreciation and Amortization  ("EBITDA"),  as further defined in the agreement.
In  addition,  the  executive  is entitled to receive an option to purchase  the
Company's  common stock in an amount to be determined by the board of directors.
As of March 22,  2005,  the  agreement  was not in effect and no option has been
granted.

      In  October  2004,  the  Company  entered  into  a  three-year  employment
agreement  with an  executive  to  serve  as its  Chief  Financial  Officer  and
Executive Vice President.  The executive's  employment by the Company under this
agreement  shall  commence  in two  weeks  from  the  date  of the  initial  FBO
acquisition  and the firm  commitment  and  written  agreement  by the  Board of
Directors in securing no less than $20.0 million in debt and equity financing by
the Company. This agreement provides for an annual salary of $125,000,  $150,000
and $200,000,  respectively,  plus an annual  incentive bonus upon the Company's
EBITDA. In addition,  the executive is entitled to receive an option to purchase
at the  listed  price at the date of grant a total of  750,000  shares,  with an
option to  purchase  250,000  shares to be granted by the  Company on March 1 of
each of the years 2005,  2006 and 2007.  The  options  shall vest at the time of
issuance and the  executive  shall have five years to acquire the stock from the
date of issuance.  As of March 22, 2005,  the agreement was not in effect and no
option has been granted.


                                       23
<PAGE>

ITEM  11.  SECURITY  OWNERSHIP  OF  CERTAIN  BENEFICIAL  OWNERS  AND  MANAGEMENT
           PRINCIPAL SHAREHOLDERS AND SECURITY OWNERSHIP OF MANAGEMENT

BENEFICIAL OWNERS

      The table below is based on  information  obtained  from the persons named
therein with respect to the shares of the Common Stock beneficially owned, as of
the March 22, 2005  (except as noted  below),  by (i) each  person  known by the
Company  to be the  owner of more  than 5% of the  outstanding  shares of Common
Stock,  (ii) each director of the Company,  (iii) the Chief Executive Officer of
the Company,  and (iv) all executive  officers and directors of the Company as a
group.

<TABLE>
<CAPTION>
                                           AMOUNT AND NATURE           PERCENTAGE OF
                                             OF BENEFICIAL           OUTSTANDING SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER(1)        OWNERSHIP                  OWNED(i)
---------------------------------------   --------------------      --------------------
<S>                                              <C>                    <C>
Alvin S. Trenk, Director                            15,250(2)           Less than 1%

Ronald J, Ricciardi, President, CEO and            876,875(2)               14.5%
  Director

George Reenstra, Director                                0(2)

William R. Colaianni, Director                           0(2)

Jeffrey B. Mendell, Director                             0(2)

All Directors and Officers as a Group              892,125                  14.8%

York Capital Group, LLC                          1,685,125(3)               28.0%

Rogo Letter, Inc.                                  899,750(3)               15.0%

Sands Brothers Venture Capital III, LLC            502,297(4)                7.7%

Bonanza Trust                                      879,020(4)               12.7%

Andrew Zaro                                        879,020(4)               12.7%

KWG Trust                                          879,020(4)               12.7%
</TABLE>

Notes:

      (1)   The percentages are computed on the basis of 6,026,022 shares of the
            Common Stock being outstanding on March 22, 2005.

      (2)   The table does not reflect an option to purchase 25,000 shares which
            is not currently  exercisable or exercisable within 60 days of March
            22, 2005.

      (3)   The shares of this entity are owned  beneficially by Ruth Trenk, the
            wife of Jeffrey M. Trenk,  a  consultant  and  stockholder,  and her
            daughter Jamie Levine.  These shares may be attributed to Mr. Trenk,
            who disclaims beneficial ownership thereof. In addition,  Ruth Trenk
            owns 244,000  shares,  Jamie Levine owns 15,250 shares and Mr. Trenk
            owns 289,750  shares and holds an option to purchase  50,000 shares,
            which option is not currently  exercisable or exercisable  within 60
            days of March 22,  2004.  Were the  shares of the two  entities  and
            those of his wife Ruth Trenk and her  daughter  attributable  to Mr.
            Trenk,  he might be deemed the  beneficial  owner of an aggregate of
            3,133,875 shares on March 22, 2004. However, he disclaims beneficial
            ownership  of all such  shares  except  the  289,750  shares he owns
            directly.

                                       24
<PAGE>

      (4)   Shares which may be issued upon the  conversion  of the  Convertible
            Notes into shares of the Common  Stock,  for only those  holders for
            which  conversion  would  result  in  holding  5%  of  more  of  the
            outstanding shares of the Common Stock.

ITEM  12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      For items,  (a), (b) and (c) There are no  relationships to report in this
section.

      For item (d), Transactions with Promoters,  during the Year Ended December
31, 2004,  promoters  Jeffrey M. Trenk (and  affiliates) and Ronald J. Ricciardi
provided  funds and services to the Company  valued at $132,186 and $31,860,  in
exchange for the receipt of 1,536,573 and 369,677 shares of the Company's Common
Stock, respectively.


                                       25
<PAGE>

ITEM  13. EXHIBITS

(a)   DOCUMENTS FILED AS PART OF THIS REPORT.

      See index to Consolidated  Financial Statements attached,  which are filed
as part of this report.

(b)   DESCRIPTION OF EXHIBITS:

<TABLE>
<CAPTION>
----------------------- --------------------------------------------------------------------------------------------------
   EXHIBIT NO.          DESCRIPTION OF EXHIBIT
----------------------- --------------------------------------------------------------------------------------------------
<S>                     <C>
          2             Agreement  and Plan of Merger dated as of July 26, 2004 by and between the
                        Company and FBO (without schedules).(1)
----------------------- --------------------------------------------------------------------------------------------------
         3.1            Certificate of Amendment to the Company's Certificate of Incorporation filed on July
                        30, 2004.(1)
----------------------- --------------------------------------------------------------------------------------------------
        3.1(a)          Certificate of Designations.(5)
----------------------- --------------------------------------------------------------------------------------------------
         10.1           Convertible  Loan Agreement  dated April 16, 2004 by and among FBO and the
                        Investors named in Schedule A thereto.(1)
----------------------- --------------------------------------------------------------------------------------------------
         10.2           Amendatory  Agreement  dated as of July 26,  2004 to the Convertible Loan
                        Agreement filed as Exhibit 10.1. (2)
----------------------- --------------------------------------------------------------------------------------------------
         10.3           Form of  Convertible  Note due  April  15,  2009  issued pursuant to the Convertible Loan
                        Agreement filed as Exhibit 10.1.(1)
----------------------- --------------------------------------------------------------------------------------------------
         10.4           Letter  Agreement  dated  October 21, 2004  amending the Convertible Notes, the form
                        of which is filed as Exhibit 10.3.(2)
----------------------- --------------------------------------------------------------------------------------------------
         10.5           Employment  Agreement dated as of January 2, 2004 by and between Ronald J.
                        Ricciardi and the Company.(3)
----------------------- --------------------------------------------------------------------------------------------------
         10.6           Business  Development  Agreement  dated as of January 2, 2004 by and between
                        Jeffrey M. Trenk and the Company.(3)
----------------------- --------------------------------------------------------------------------------------------------
         10.7           Employment  Agreement  dated  October  15,  2004  by and between W.R. "Robert"
                        Cumming and the Company. (4)
----------------------- --------------------------------------------------------------------------------------------------
         31.1           Officer's Certification Pursuant to Rule 13a-14(a) under the Securities Exchange Act. (5)
----------------------- --------------------------------------------------------------------------------------------------
         32.1           Certification Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.(5)
----------------------- --------------------------------------------------------------------------------------------------
</TABLE>

(1)   Incorporated  by reference  to the  Company's  Current  Report on Form 8-K
      filed on August 27, 2005.

(2)   Incorporated  by reference to the Company's  Current  Report on Form 8-K/A
      filed on November 4, 2004.

(3)   Incorporated  by reference  to the  Company's  Current  Report on Form 8-K
      filed on October 5, 2004.

(4)   Incorporated  by reference to the Company's  Current Report on Form 10-KSB
      filed on November 22, 2005.

(5)   Filed as an Exhibit with this filing.




                                       26
<PAGE>

 ITEM 14.         PRINCIPAL ACCOUNTANT FEES AND SERVICES


      AUDIT FEES. The aggregate fees billed for professional  services  rendered
was  $38,000  and  $27,500  for the  audits of the  Company's  annual  financial
statements for the fiscal years ended December 31, 2004 and 2003,  respectively,
and the reviews of the  financial  statements  included in the  Company's  Forms
10-QSB for those fiscal years.

      AUDIT-RELATED  FEES. The aggregate fees billed for  professional  services
categorized  as  Audit-Related  Fees  rendered was $22,000 and $0 for the fiscal
years ended December 31, 2004 and 2003,  respectively,  relating  principally to
mergers and acquisitions.

      TAX FEES.  For the years ended  December 31, 2004 and 2003,  the principal
accountant billed $3,500 and $3,500, respectively, for tax compliance.

      ALL OTHER FEES.  Other than the services  described  above,  the aggregate
fees billed for services  rendered by the  principal  accountant  was $0 and $0,
respectively, for the fiscal years ended December 31, 2004 and 2003.

      AUDIT  COMMITTEE  POLICIES  AND  PROCEDURES.   The  Audit  Committee  must
pre-approve all auditing services and permitted  non-audit  services  (including
the fees and terms  thereof) to be performed for the Company by its  independent
auditors,  subject to the de minimus exceptions for non-audit services described
in Section  10A(i)(1)(B) of the Securities Exchange Act of 1934, which should be
nonetheless be approved by the Board of Directors prior to the completion of the
audit.  Each year the  independent  auditor's  retention to audit our  financial
statements,  including the  associated  fee, is approved by the Audit  Committee
before the filing of the previous  year's Annual  Report on Form 10-KSB.  At the
beginning of the fiscal year,  the Audit  Committee  will  evaluate  other known
potential  engagements of the independent  auditor,  including the scope of work
proposed  to be  performed  and the  proposed  fees,  and approve or reject each
service,  taking  into  account  whether  the  services  are  permissible  under
applicable  law  and  the  possible  impact  of each  non-audit  service  on the
independent  auditor's  independence  from  management.  At each such subsequent
meeting,  the  auditor  and  management  may  present  subsequent  services  for
approval.  Typically,  these  would be  services  such as due  diligence  for an
acquisition, that would not have been known at the beginning of the year.

      Since May 6, 2003,  the  effective  date of the SEC rules  stating that an
auditor is not independent of an audit client if the services it provides to the
client are not appropriately  approved, each new engagement of Marcum & Kliegman
LLP, has been approved in advance by the Board of  Directors,  and none of those
engagements made use of the de minimus  exception to the pre-approval  contained
in Section 10A(i)(1)(B) of the Securities Exchange Act of 1934.


                                       27
<PAGE>

                                   SIGNATURES

      Pursuant  to the  requirements  of Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                FBO Air, Inc.
                                (Registrant)


Date: March 29, 2005            By: /s/ Ronald J. Ricciardi
                                   ------------------------------
                                     Ronald J. Ricciardi,
                                     President and Chief Executive Officer
                                     (Principal Executive Officer and Principal
                                     Financial Officer)



SIGNATURE                 TITLE                                 DATE

/s/ Ronald J. Ricciardi
-----------------------   President and Chief Executive
Ronald J. Ricciardi       Officer (Principal Executive          March 29, 2005
                          Officer and Principal Financial
                          Officer)


/s/ Alvin S. Trenk        Director                              March 29, 2005
-----------------------
Alvin S. Trenk


/s/ William R. Colainni   Director                              March 29, 2005
-----------------------
William R. Colaianni


/s/ Jeffrey B. Mendell    Director                              March 29, 2005
-----------------------
Jeffrey B. Mendell


/s/ George Reenstra       Director                              March 29, 2005
-----------------------
George Reenstra


                                       28